What is an Assumable Mortgage?
An assumable mortgage is a type of home financing that allows for a new owner to assume the existing mortgage when purchasing a piece of property. This type of transferable mortgage usually includes a specific clause that outlines the requirements that must be met in order for the mortgage transfer from the incumbent owner to the new owner to take place. Here are some facts about the transferred mortgage option, as well as some of the criteria that the new owner must meet in order to quality for an assumable mortgage. Assumable mortgages usually require that both the seller and the financial entity holding the mortgage to the property both agree that the potential buyer is a good credit risk. For this reason, the buyer will need to be able to demonstrate financial stability, including resources that indicate he or she will be able to make the payments on time. Along with available resources, most finance companies set minimum requirements for current credit ratings before allowing any
An assumable mortgage allows you to transfer your existing mortgage debt to the buyer of your home. The new owner would “assume” or take over your mortgage loan and pay you the difference between the amount you still owe and the agreed-upon sale price. Most lenders include a “due-on-sale” clause in the mortgage, which prohibits a buyer from assuming the existing mortgage. However, some sellers still have assumable mortgages. In addition, some lenders will allow a mortgage to be assumed by charging a fee or adjusting the interest rate on the assumed mortgage. If the interest rate is attractive, a buyer should explore the possibility of assuming the existing loan. Prior to assuming a mortgage, a prospective homebuyer should obtain a written statement from the original lender stating • the amount still owed on the loan; • that there are currently no defaults under the loan; • the rate of interest for the remainder of the loan; • the length of the repayment period remaining; and • whether
The purchase of a home is a very expensive undertaking and usually requires some form of financing to make the purchase possible. In most cases, the potential buyer goes to the bank and takes out a mortgage for the purchase. The assumable mortgage is an alternative to this traditional technique. With an assumable mortgage, the home buyer has the ability to take over the existing mortgage of the seller as long as the lender of that mortgage approves. If interest rates have risen since the original mortgage was taken out by the seller, the buyer is the party that benefits the most from an assumable mortgage. The reason for this is that if interest rates rise, the cost of borrowing increases. Therefore, if the buyer can take over the seller’s relatively lower-rate mortgage, the buyer will save having to pay the higher current interest rate. However, the full cost of the home may not be covered by the assumable mortgage and may require either a down payment on the rest or additional financ
With an assumable mortgage, the existing mortgage on a property is transferred from the seller to the buyer, who then assumes the obligation of making the mortgage payments. Typically, the original lender must approve the transaction and may also charge an assumption fee. Also, it generally is easier to assume an existing mortgage than to obtain a new mortgage. A real estate agent who is a REALTOR, a member of the NATIONAL ASSOCIATION OF REALTORS, can be a helpful source for a variety of home financing ideas.
