The seller wants the most for their home and the buyer wants to pay the least possible. From the very beginning of the homebuying process, there are adversarial positions between the principals. If you happen to be in a multi-offer situation, it just complicates things further.

Then, there are the emotions that tend to cloud the decision making on both sides of the transaction. Sellers have lived in the home for years, possibly, with cherished family experiences and maybe, having put considerable effort and money into capital improvements.

On the buyer side, they may have lost out on several homes due to competing offers and now, this year, interest rates have doubled, and the discretionary funds required to pay for a home could be causing cuts in their budget in other areas.

A year ago, buyers were waiving contingencies for financing, appraisals, inspections, and other things just to be competitive. Today, to make the home more affordable with the higher mortgage rates, buyers need the seller to make financial concessions but who is going to make their case to the seller for them?

The role of a third-party negotiator played by the real estate professionals has always been valuable to the success of the transaction but now, it may even be essential. Sellers enjoyed an extraordinary market in their favor for the past two years with incredible appreciation and so many buyers chasing so few homes, the sellers were able to write their own ticket.

Inflation and mortgage rates have put the brakes on the market, eliminating over 15 million mortgage-ready buyers. The buyers who are still in the market need to be cautious, so they don’t overextend themselves and overpay for a home.

The agents can assist both the buyers and sellers in seeing things in an objective way that reflects the current market and not the way it was a year ago. All parties must be reasonable and not expect too much. They need to consider facts and not feelings.

Negotiating the sale or purchase of a home is a competition; for one person to get something, someone must give something up. If a person doesn’t feel comfortable with this, it is important to work with an agent who can bring their skills to the table on your behalf. As your advocate, they can champion your position and put transactions together that would not have been possible if it were left to the principals alone.

Negotiation skills are acquired through training and experience. When interviewing an agent, ask them what role negotiation plays in their marketing plan if you’re a seller and purchase plan, if you are a buyer. An agent who cannot defend their position in the transaction may not be the right person to defend yours.

As the expression goes, "if I could turn back time", maybe you’d would do some things differently. If you’re wanting to buy a home, the regret may come from not getting a mortgage when rates were half of what they are today. There may not be a way to literally "turn back time" but you may still be able to get a mortgage with last years’ rates.

Let’s say a home was sold in the fall of 2021 for $350,000 with a 3% FHA loan. Today, winter of 2023, the home is on the market for sale at $400,000. There are buyers who have $40,000 for a down payment, who like the home, and want to purchase it.

At today’s mortgage rate of 6.42%, the $360,000, 30-year mortgage payment would be $2,2565.54 for the principal and interest. They have been looking for a year and in the past 12 months, the mortgage rates have doubled which will stretch their finances along with all the other inflationary pressures.

Their incredibly savvy agent has learned that the underlying mortgage is an FHA mortgage at 3.00% with a little less than 29 years remaining. This loan could be assumed by an owner occupant at the current rate which would save the buyer a considerable amount of interest.

The problem is that the buyers do not have enough cash to buy the equity. The unpaid balance is $328,902 which makes the equity about $71,000 which is more than the $40,000 they have available.

The agent believes that with the buyer using the $40,000, they should be able to get a second mortgage for the difference of $31,000. While it may not be possible to get a 30-year term on the second, it may be possible to get a 30-year amortization on the payment and have the second loan due in ten years.

Sources for the second loan could be the borrower’s local bank, a credit union, a relative or other investor not happy with what they’re earning on cash in the current market.

This could save the buyer over $600 a month. In addition to a lower payment, assumptions on FHA loans have lower closing costs, they’re easier to qualify for, and the lower mortgage rates allow them to amortize faster than a higher rate mortgage.

In the early 1980s, both Fannie Mae and Freddie Mac added "due on sale" and escalation of interest rate clauses to the standard verbiage on notes and mortgages. From a practical standpoint, this ended assumptions of most conventional mortgages.

FHA and VA continued to be assumable by anyone, regardless of credit, until 12/1/86 and 3/1/88 respectively. At that time, an owner-occupant could assume the existing interest rate but had to qualify to do so. Mortgage rates went down over the next three decades with only some temporary increases until January 2022 when they began to increase dramatically.

If a buyer had to qualify to assume a mortgage, especially if it was higher than the current rates, there was no compelling reason to put more money down for an existing mortgage. Now, in 2023, this environment has changed.

Many buyers who purchased using an FHA or VA mortgage in the past two to three years, benefitted from some of the lowest rates in over 50 years. The equities in these properties are still within reason to either assume cash to equity or consider a second mortgage for part of the equity.

If you’d like to learn more about how to assume FHA, VA, or USDA mortgages at lower rates than currently available on new mortgages, contact your real estate professional. Unfortunately, some agents are not aware of how assumptions work. Give us a call and we can walk you through the process and even have a spreadsheet that will analyze the comparison for you.