Mortgage transfers are considered a way to beat rising rates

The goal was just not to lose money.

Matthew Kilboy When he listed the Washington, D.C., condominium he and his wife bought in 2017, he acknowledged that high interest rates and a soft market for condos meant more dollars than the $529,000 he paid and thanked his lucky stars. b.

A similar two-bedroom, two-bath unit in the building recently went for just under half a million. The $549,000 price they listed in April was basically wishful thinking.

A month later, the couple closed for $565,000 — thanks to a little-known convenience that has become increasingly popular as mortgage rates rise. Their unit comes with a 30-year mortgage that can be adjusted with a fixed rate of 2.25 percent, which the couple locked in after refinancing in November 2020. The couple, who moved to Denver, found many bids at exorbitant asking prices, seemingly a relic of the real estate market that collapsed during the Covid-19 lockdown, with the buyer likely to inherit the mortgage.

“It was the first sentence of the list,” said Mr. Kilboy, 39, a former Navy nurse whose loan was backed by the Department of Veterans Affairs. “Nobody could get interest rates that low, so we were pushing.”

The Federal Reserve may have stopped raising interest rates, but monthly mortgage costs remain more than double what they were 18 months ago. This has greatly reduced the supply of sales inventory, preventing millions of homeowners who were caught up in bargain prices during the pandemic from selling their homes and racking up hundreds of dollars a month in additional loan costs on new ones.

Because there is so little to sell, housing prices have stabilized, and continue to rise, even as the cost of borrowing increases. The debate among real estate agents and economists is that anyone who gets a mortgage rate of 3 percent or less is holding a treasure they don’t want to give up.

But every property has value. And now an emerging cadre of investors and real estate agents are trying to sell mortgages several years in advance by passing them on to new buyers.

Real estate broker Redfin has seen comments like Mr. Kilboy’s, such as “a beautiful home with an affordable 3.25 percent mortgage,” skyrocket. Facebook groups have emerged to find buyers for them, new companies are offering services to speed up the transfer.

“Affordable homeowners have something that many homebuyers want and are willing to pay for,” said Daryl Fairweather, chief economist at Redfin. “For people who bought when house prices were at their peak but mortgage rates were still low, it can be an attractive way out of a regrettable purchase.”

Investors are just as curious: The phrase “creative finance” has become a hot topic of conversation on sites like BiggerPockets, a forum where landlords trade tips on topics like making short-term rentals and buying an initial investment property. In books, seminars and YouTube videos, influencers sell advice on how to get homeowners willing to pass on low-cost loans without their bank’s knowledge — a valuable but extremely risky strategy companies say they’ve seen too much of.

Scott Trench, CEO of Bigger Pockets, added in his disclaimer that “it’s very interesting,” adding that many of these strategies involve additional risks and paperwork that most people aren’t aware of.

From the pedestrian to the dodgy, it seems to highlight the way the country’s real estate market has regrettably cooled. Buyers are angry about the loss of low-cost loans. Sellers are unwilling to lower their prices from the peak of the pandemic. In lieu of acceptance, a determined few They are trying to use imagination and fine print to build a cheap money days portal in 2021.

Most US mortgages are not directly adjustable. However, many popular government-backed mortgages — such as those underwritten by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture — are typically insured, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. These loans are frequently used by first-time buyers and account for nearly a quarter of mortgages, according to Black Knight, a mortgage technology and information provider.

In theory, any of the millions of homeowners with a potentially low-rate mortgage would have a significant advantage in selling their home. Still, real estate agents say it can be practically difficult to convey them. For example, homeowners who transfer a VA-backed loan may lose their ability to obtain another similar loan unless they find a VA-qualified buyer to take over the original mortgage.

Or consider the homeowner who has a low-rate mortgage but has paid it off: In order to secure the loan, the buyer must come up with a large down payment on the seller’s equity—something very few people can do. do.

Craig O’Boyle is hoping to create a business that makes estimates quick and easy. Mr. Oboyle has been a real estate agent selling homes in Colorado for three decades, until he remembers having to read the door-closing contract that buyers and sellers now click on DocuSign. Reading about some mortgages that can be rated online, he thought that if the rates went up, those owners would suddenly realize that their debts were worth it.

“And that’s going to change the interest rate market,” Mr. O’Boyle said.

Last year, he and his partner started Assumption Solutions, a consulting firm that helps real estate agents broker mortgages between sellers and buyers for a processing fee of $1,100 per deal. In his address to delegates, Mr O’Boyle argued that they would push the price below 3-3% when doing a marble shelf or a mountain view.

“You put this on the market, and let’s say you’re competing with the house next door, your house has to sell fast or for a lot of money,” he said.

Although for most people using a non-transferable standard mortgage, some rate offsets are becoming standard. While home prices fell to an all-time high last June, mortgage rates haven’t fallen enough and are on the rise again.

To stimulate new lending, mortgage companies have begun marketing products in which borrowers can “buy” rates by paying several thousand dollars at low interest rates for a year or two. One of the most popular products is the “2/1 purchase” where the borrower pays two percentage points in the first year and one percentage point in the second.

Simply put: “Most homes are unaffordable at today’s rates,” says Luis Solis, a real estate agent in Phoenix and Portland, Ore.

Most of Mr. Solis’ recent deals have had some interest rate offsets, which are price cuts in all but name, he said. It is usually a closing sum that buyers use to buy temporarily lower prices. Many equity sellers are able to cut out the middleman and finance the buyer’s purchase by serving as a lower-cost lender—seller financing, it’s called.

Paying down mortgages while considering mortgages: These are creative but straightforward solutions to rising loan costs. But on the fringes, a growing number of investors looking to buy a home with less money are trying gray financing techniques — known as “conforming” or “sub-to” — to find people who have fallen behind on debt. and make a side agreement to take their (low interest) payment (the agreement is called “capture” of the current loan.)

The strategy has obvious appeal when interest rates are high, but it has a big caveat: Once a house is flipped, banks have the right to call in the loan — meaning they demand that the seller’s mortgage balance be paid in full immediately. . Also, if the buyer defaults on the payments, the property can still be foreclosed on – damaging the seller’s credit with a home he or she doesn’t own.

Despite this, Empire Title President Bill McAfee says he’s seen an increase in customers looking to transfer their title under these terms, and cautions both parties about what stock disclosures can do.

“I’m not saying I’d agree to do that, but it’s a way to get into property for less money,” he said. “They need to know if the risk is worth it.”



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