Assumable mortgages are an option that people can use to gain an edge during the home buying or selling process. As a buyer, an assumable mortgage allows you to take over the seller’s monthly house payments. Once you assume the mortgage, the seller can be released from their initial responsibility to fulfill the terms of the loan.
This arrangement has benefits for both buyers and sellers. Exploring how the benefits apply to your situation will help you decide if you want to take advantage of an assumable mortgage.
Taking over the terms of someone’s loan means that the interest rate stays the same. This can be tremendously beneficial if interest rates have gone up a lot over the years. Being able to save on interest could make a nicer home more affordable.
Assumable loans often have lower closing costs compared to new ones. For example, the lender may allow you to opt out of an appraisal since the home already has a set value. Buyers who receive government-backed loans can also enjoy lower closing costs.
Assumption fees are charged to buyers upon the completion of them taking over the loan. This fee is meant to cover things such as the paperwork that is required to transfer ownership of the mortgage to the buyer. The VA, USDA and FHA all set limits on assumption-related fees so that you could pay less than you might during a traditional closing.
VA loans offer additional benefits for service members following orders for a rapid move. People who are eligible for VA loans are allotted a specific amount of an entitlement.
Someone who cannot sell a home that they still owe on fast enough may not have enough entitlement available to purchase a new home. If the seller can find another person to assume their mortgage, then their entitlement can be restored.
The process of obtaining a new home loan can be lengthy. With a traditional loan, you may need to complete additional requirements from the lender such as a credit check or appraisal. Then, you’ll need to wait even longer for them to process the information and draw up the terms of the loan. Since the terms of an assumable loan are already in place, you may be able to bypass several steps.
Sellers also have a few things to gain from offering an assumable mortgage. The lower interest rates that buyers receive often makes it possible for a seller to raise their asking price. This is especially true in a competitive housing market. If mortgage rates are high, many buyers will compromise on a higher house price when they can save more on long-term interest.
Not all loans are eligible to be an assumable mortgage. Conventional loans tend to be harder for a buyer to assume. Sellers can work this angle to attract people who want to take advantage of lower interest rates in a rising housing market.
There are many benefits to choosing to pursue an assumable mortgage. As with any mortgage loan, you still need to make sure to follow the proper procedures for requesting a loan and reaching an agreement. Once a loan offer is made, make sure that you understand all of the terms. This reduces any risks that you face as a buyer or seller so that you reap the most benefits from the arrangement.