- The Washington Times - Friday, June 23, 2000

With interest rates edging upward to 9 percent, everyone's looking for a low-rate mortgage, and they don't want to pay too many points to get it. Actually, plenty of low-interest loans are available hovering around 7 percent you just have to know where to look.

I'm referring to assumable loans available from homeowners who either refinanced or purchased homes in the past eight years, during the period of superlow interest rates. Next time your real estate agent pulls multiple-listing sheets for you, be sure to look over the current mortgage information. Was it acquired during the low-interest years? Is it assumable? If you answer "yes" to both questions, you may have found your low-interest loan.

Keep in mind, the buyer will be assuming the loan amount, which means he or she will have to come up with enough cash to pay the difference between the loan amount and the home's market value.

For instance, say the loan amount is for $185,000, but the market value of the house is $235,000 the buyer will have to produce $50,000 to assume the loan (plus closing costs). If you recently have done well in the stock market, this may not be a problem, but review the possibilities with your agent or financial planner, nonetheless.

Before you run out and sign up to take over payments from a seller, make sure you understand some nuances about loan assumptions. There are "freely assumable loans" and "qualified assumptions."

With a freely assumable loan, the lender allows a new borrower to take over the mortgage payments without first getting the lender's approval or even qualifying for the loan. Sounds great, doesn't it? That's why there aren't too many of those left.

A number of older loan programs feature freely assumable mortgages, such as Federal Housing Administration-insured loans originated before Dec. 1, 1986, for any buyer and before Dec. 15, 1989, for owner-occupant purchasers. With Veterans Affairs-insured mortgages, search for loans made before March 1, 1988.

Most of the assumable loans you will find in today's market are qualified assumptions. They are loans in which the lender must first approve the new buyer for the loan before the assumption is allowed. The tricky part for the seller is that some of these assumptions still leave the seller liable for the loan if the new buyer defaults. Both buyer and seller should read the fine print on the assumption agreement.

Sometimes you'll see an offer to purchase "subject to" the mortgage. This is kind of like an assumable loan in that the lender lets the new buyer take over the loan. In the case of a default, the lender first will pursue the new borrower, then the original borrower. The lender is protected from default either way.

Many loans specifically prohibit an assumption. With a "due-on-sale" clause, the lender may require complete payment of the mortgage when the property sells. If the seller's mortgage papers include a due-on-sale clause (or acceleration clause), it effectively prohibits the mortgage from being assumed by another borrower.

Mr. Carr is director of communications for the Realtor MediaCenter, a clearinghouse of real estate information for the Greater Washington area. He can be reached at 703/207-3226 or by e-mail at macarr@nvar.com. For area home-sales data, check www.nvar.com or www.gcaar.com.

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