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When a loan is assumable, it means that it can be taken by another borrower, who ‘assumes’ the payments, as well as the ownership of the property. An assumable mortgage lets buyers assume the entire mortgage as it is — the interest rate, the current principal balance, the repayment period, and all the other mortgage terms. Fortunately for borrowers, HUD 232 and HUD 232/223(f) loans are fully assumable, with permission from the FHA/HUD, and a 0.05% fee.

In a rising interest rate environment, properties with marginally lower interest rates and longer amortization terms will potentially be more marketable. If a buyer purchases a similar property without assumed debt they will be paying market interest rates, so, if they purchase your property, they could save a lot of money. However, if interest rates are falling, there isn’t much of an incentive for them to assume your debt.

A final benefit of HUD financing is the fact that it can allow borrowers to avoid paying a prepayment penalty if they decide to sell their property just a few years after purchasing it. As long as the buyer assumes their loan, the seller will not be responsible for any prepayment penalties. However, the new borrower will have to accept that they will face prepayment penalties if they decide to sell the property before the prepayment period is up. Of course, if the new borrower also decides to sell quickly, they can always have a new buyer assume their loan.

QC Capital’s latest deal under contract, The Verdir at Hermann Park, currently has a HUD loan with a 2.5% interest and a remainder of 28 years on the amortization that will be assumed. If rates continue to climb towards 6% and remain high as the FED to battle inflation, the loan itself becomes a selling point when it is time to sell.

If you are interested in learning more about this class-A, 224 unit asset located next to the medical complex in Houston Texas, you can visit our website’s page for The Verdir.

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Nicholas Abraham

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Become An Investing Partner