Assumable Mortgages – What is the sellers incentive?
Here are a few fundamental reasons.
Attractive Pricing Sells
The assumable price is more attractive to buyers. 1. Buyers do not need any out of pocket money to assume a loan. 2 Buyers with Lower credit Scores can afford a home. 3 Buyers Avoid PMI because many of these loans no longer have it, and the terms cannot change. 4. Most importantly” Buyers benefit from a shorter payment term. If a seller has been in their home 5 years they have paid 60 payments. That means on a 30yr mortgage there would only be 300 monthly payments left for the buyer. Thats saves thousands of dollars. Do the math.
Prevents Deficiency Judgements
A short sale does not cover the entire mortgage balance you owe on a property, so your lender could demand you pay the difference by filing for a deficiency judgment. This cannot occur with a assumable loan because the entire loan is transferred to the buyer.
Saves Taxable Income
A short sale requires a seller to report forgiven debt. The IRS views forgiven debt as taxable income. The larger the canceled debt, the larger the tax bill. While there are some situations were it is not taxable, assuming a loan carries a tax advantage because it does not expose the seller to any financial loss.
Preserves Credit Score
A short sale will lower your credit score significantly. Lenders will report a short sale as an account “not paid as agreed” to credit reporting agencies. Assuming a loan is a much better recourse because the seller will be released of all liability associated with the loan and property. This includes their credit liability. (The buyer relieves the seller of their debt obligation to the lender and takes over all remaining payments for the duration of the loan).
Short sales are painfully slow. Lenders have to approve a short sale before it is final. This means an offer from a buyer must first be approved by a lender’s loss mitigation department-This can take anything from a few days to two months, and by then your buyer might no longer be interested. Assumptions can be completed in less than 30days, because there is minimal paperwork. Finding a buyer willing to take over their existing home loan is easier than you might think.
Short Sales hurt consumers and lenders. Assumable sales protect them. Learn more at Takelist.com