Strategy 13 of 107
Buyers: assume a seller's lower-rate FHA or VA loan
What it is
Look for homes whose sellers have assumable FHA, VA or USDA loans at lower rates.
Steps
- Look for homes whose sellers have assumable FHA, VA or USDA loans at lower rates.
- Assume the loan and keep paying what a new loan would have cost you. The difference goes to principal.
Repeat: Each purchase.
Measure: Months to payoff at the assumed rate and your planned payment.
Try it in the calculator Enter its amount in "New rate, same payment". Add a payoff goal of 5 years to see what is still needed.
Risks
- The buyer must cover the seller's equity in cash or a second loan.
- Lender approval takes time.
Who it fits
Newlyweds, Single, No college degree, No high school diploma, Average household
Needs
Buying a home now or soon
How predictable
Most predictable: once in place, the payoff date is arithmetic
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (newlyweds). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: look for homes whose sellers have assumable FHA, VA or USDA loans at lower rates.
Suppose it brings a new rate of 5.5% while they keep paying the old $1,896 payment. The loan would be paid off in 23 years 7 months instead of 30 years, saving about $147,106 in interest. To finish in five years, they would still need about $3,834 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Live-in landlord ladder: Buy owner-occupied, rent the other units, move after the occupancy period, repeat. Each property's rent pays its own principal.
Sources and more information
- U.S. Bank: What is an assumable mortgage? usbank.com
Where to get help
- CFPB: Find a HUD-approved housing counselor (free or low cost) consumerfinance.gov
- CFPB: Submit a complaint about a lender or servicer consumerfinance.gov
Related strategies
- 18. First-lien HELOC with a sweep account (an all-in-one loan)
- 19. Buyers: have the seller pay down the rate
- 21. Drop mortgage insurance and send that amount to principal
- 22. Lower the escrow: appeal the property tax, claim exemptions, use the surplus refund
- 23. Re-shop homeowners insurance and send the savings to principal
- 1. Refinance lower, keep paying the old payment