Going into the home buying process can be very intimidating. There are several different types of loan products and tips and tricks you should be aware of.
If you have started the home buying process, chances are you have probably heard the term assumable mortgage. What is this exactly?
What is an assumable mortgage
An assumable mortgage is an existing mortgage loan that a can be taken over by a new borrower. The homebuyer will still need to fill out a loan application and allow the lender to conduct a credit pull.
The loan is simply being transferred so there will not be any new rates or terms set into place.
How to find an assumable mortgage
Any loans insured by the FHA or VA are assumable. As for adjustable rate mortgages, that depends on if they are in their fixed-rate period or not.
Most conventional mortgages can not be assumed as they contain “due on sale” clauses, meaning that the loan must be paid off when the property is sold to a new owner.
When home searching, sellers and their agents may include that the loan is assumable in the listing description.
Pros and cons
One of the largest advantages of an assumable mortgage is if you are having a hard time getting approved for your own loan, this may be an easier route for you. An assumable mortgage may even offer a more attractive interest rate.
A disadvantage to an assumable mortgage is you may need cash or a second loan to cover the difference in what has already been paid on the loan by the previous owner.
Getting approved
You will still need to meet the income and credit requirements that the particular loan you are assuming requires.
However, if you are assuming a VA loan, you do not have to be a military member or veteran. You do need approval from the VA to assume the loan though.
Should you assume a mortgage?
The easiest way to determine if an assumable mortgage is right for you is to compare the interest rate and term on that loan versus the current market rates. You can also get pre-qualified for a mortgage loan to compare the rates as well.
Also keep in mind that there are still costs involved with assuming a mortgage. These include funding fees, assumption fees, recording costs, title search and insurance and escrow costs.
