Novation and Assumable Mortgages: Two Creative Ways to Sell a Wisconsin Home
Most sellers think they have two choices: list the house or take a cash offer. Those are the two ends of the spectrum, and for a lot of people one of them is right. But there are paths in between that almost nobody in southwest Wisconsin talks about, and two of them, novation and assumable mortgage sales, can fit situations where neither a listing nor a cash sale works well. I'm Jeremy Fishnick, a Realtor and licensed home inspector in Lancaster, and I offer both as part of the six ways I can help someone sell. Here's how each one works, in plain terms, and who they're for.
A note before I start: these are less common structures with more moving parts than a standard sale, so I'll describe them generally. Specific terms get worked out with the buyer, the lender where one is involved, and your attorney, who should review the paperwork.
Novation: fix it up without paying for it
The problem it solves
Say you own a house in Fennimore that would sell well if it had a new kitchen, updated baths, fresh flooring, and paint. In its current condition it would bring a cash-offer price, meaning well below what it's worth fixed up. You don't have the cash or the appetite to renovate it yourself, and you don't want to give away the whole upside to an investor. That gap is where a novation fits.
How it works, generally
In a novation arrangement, an investor agrees to fund and manage the renovation of your house while you keep ownership. The house is then listed and sold on the open market at its improved value. At closing, you receive an agreed-upon amount, the investor is reimbursed for the renovation and earns their return out of the difference, and the end buyer gets a finished house. The word "novation" refers to the agreement that governs how the original deal between you and the investor is carried through to the eventual retail buyer.
From your side, it looks like this:
- You agree in writing to a net price you'll receive. This is typically higher than a straight cash offer because you're sharing in the upside of the renovation rather than selling at the bottom.
- The investor does the work, with their money, on an agreed scope and timeline.
- The house is marketed and sold to a conventional buyer.
- Everyone gets paid at the title company closing.
Who it's for
Novation tends to make sense for a seller who has time (a renovation and resale takes months, not weeks), owns a house with meaningful cosmetic or moderate upside, isn't desperate for cash today, and would rather have a better number than a faster one. It's a poor fit if you need to close in thirty days or if the house has a structural problem that would eat the renovation budget. As the inspector in the room, that second part is something I can tell you before anyone signs anything.
What to watch
Who controls the scope and budget. What happens if the house takes longer to sell than planned. Who pays taxes, insurance, and utilities during the renovation. What your out is if the investor doesn't perform. Your attorney should read every line.
Assumable mortgage: handing off a loan the buyer wants
The problem it solves
If you bought or refinanced when interest rates were low, the loan on your house may be one of its most valuable features. A buyer who takes over that loan instead of getting a new one at today's rate could save a meaningful amount every month. That can make your house more attractive than the one down the street, and it can let you ask for a stronger price or better terms.
Which loans can be assumed
This is where you have to check the fine print. Government-backed loans, meaning FHA, VA, and USDA, are generally assumable by a qualified buyer, subject to the lender's or servicer's approval. Most conventional loans are not; they contain a due-on-sale clause that requires the loan be paid off when the house transfers. There are exceptions, and the rules for each program have their own wrinkles (VA loans, for instance, raise a question about the seller's entitlement that you'll want to understand). Call your loan servicer and ask whether your loan is assumable and what their process is. Don't rely on what a buyer or a website tells you.
How it works, generally
- The buyer applies with your lender or servicer to assume the loan and has to qualify under that program's standards.
- The buyer pays you the difference between your loan balance and the agreed sale price. That's the catch: if you have a lot of equity, the buyer needs a lot of cash, or a second loan, to cover the gap. Sometimes that's where a cash hybrid or another creative structure comes in.
- The lender approves the assumption and, ideally, releases you from liability on the loan. Make sure that release is in writing. You do not want to be on the hook for a mortgage on a house you no longer own.
- Closing happens at a title company like any other Wisconsin sale.
Who it's for
A seller with a low-rate FHA, VA, or USDA loan and modest equity, selling to a buyer who can qualify and has the cash for the gap. In Grant County, where many homes were bought with USDA or FHA financing, this comes up more than you'd think. It's not fast; lender assumption processing can take longer than a standard purchase.
How I fulfill these
Because I'm brokered by LPT Realty, I have access to their Zoodealio platform, which connects sellers with investors and buyers for these non-traditional structures. Some deals are also handled through Wisconsin House Partners, my own direct-purchase business. Either way, I'm the one who walks your house, prices it, explains the options, and manages the process, with the same disclosure and attorney-review recommendation you'd get on a regular listing.
How these fit with the other four ways
I lay out all six in Six Ways to Sell a House in Southwest Wisconsin. Most of my sellers end up with a traditional listing, because for a house in decent shape in an active town it brings the most money, and I back it with my Sold For Top Dollar Guarantee and $0 cancellation policy. But when a situation doesn't fit the usual mold, I'd rather have more tools than fewer. For the simpler listing-versus-cash comparison, see When a Cash Offer Makes Sense.
Questions to answer before choosing either
- What would the house bring as a straight listing today, as-is?
- What would it bring renovated, and what would the renovation realistically cost?
- What's my loan type, balance, and rate, and is it assumable?
- How soon do I need to be out, and how soon do I need the money?
- Have I had an attorney look at this?
Talk to Jeremy
If you're sitting on a low-rate loan or a house that needs work and you want to know whether a novation or an assumption could beat your other options, I'm Jeremy Fishnick. Call or text 608-732-2564, or start at fishnickrealty.com.
