What is an assumable mortgage and who can get one in Las Vegas?

Given mortgage rates recently hit a quarter-century high, many Las Vegans who still want to get into the housing market are trying to find new ways to escape the financial hit.

One way is through an “assumable mortgage,” which is where a homebuyer takes over the seller’s mortgage payments. But this type of deal is only available for Veterans Affairs and Federal Housing Administration mortgages, and not on conventional mortgages such as through Fannie Mae and Freddie Mac.

Billy O’Keefe, a Las Vegas Realtor with eXp Realty, said not all mortgages can be transferred over to the buyer, but it’s always good to check.

“There is always a qualification process and it would not be accurate to say that it is standard amongst all of the different service providers for these loans,” he said. “Once we have the details we can then have this in our back pocket as an additional benefit to offer a potential buyer.”

Matt Hennessy, a Las Vegas-based mortgage adviser, echoed O’Keefe’s statement in saying this is still not the biggest hurdle that needs to be crossed, and there are many. This may make a home more attractive to buyers, said O’Keefe, if the buyer knows a potential assumable mortgage is at play. However, if the seller has a lot of equity in their home, then a lot of cash upfront will be required to make the deal.

“An interested borrower would need to of course qualify for that mortgage, but here’s the catch: With home price appreciation over the years, it’s likely that, let’s say the sales price is $500,000 and the mortgage that they want to assume is $250,000, that interested homebuyer would need to bridge the gap between the sales price to that of the mortgage loan balance the seller currently has.”

Mortgage rates did fall for the first time in two months recently, however still remain high for most buyers, and O’Keefe said there are two big catches with “assumable mortgages” and “if a seller is selling their house for $600,000 and they owe $300,000, and have an assumable VA loan, the buyer would need approximately $300,000 of down payment to cash out the seller and close.”

“These situations really only work if the loan amount is pretty close to the sales price, since this gap is usually what the down payment needs to be. It’s unusual for sellers to want to carry a note as a second for a portion of the down payment, because they usually want to be cashed out and did not play the role of a bank. The other downside for a VA seller would be that if they allow a buyer to assume their loan, it would tie up their VA eligibility on the purchase of another property. This might be a deterrent if the seller is looking to purchase after they sell.”

Las Vegas Realtors President Lee Barrett said buyers with cash in hand should definitely look into the option as it could be a safe way for a seller to attract more potential buyers to their home given the current interest rate climate.

“When I first started in the real estate business in 1977, we were doing up until about 1987, a lot of FHA and VA assumable loans, back then they didn’t need to be qualified. And this process is anywhere from 60 to 120 days so its not a quick process, but it’s a great opportunity for a buyer that has some cash flow or some money to be able to buy a house at a lower interest rate.”

Las Vegas real estate is on pace to have its worst year since the Great Recession in 2008 as buyers have pulled back due to high rates and a lack of supply. A symptom of raised interest rates has many homeowners “locked” into their mortgage rates and unable to sell or move given financial constraints.

There are a multitude of challenges currently facing Las Vegas when it comes to housing which includes everything from rising rental costs, Wall Street hedge funds buying up large portions of the single family market and both a lack of supply in terms of affordable housing and apartment units.

Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.