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Understanding Assumable Mortgages
When embarking on the purchase of a new home, you likely hear a lot of mortgage talk - what kind you should get, how long a term is ideal, and interest rates, interest rates, interest rates.
One unique mortgage option available in specific cases is the assumable mortgage, which allows a buyer to take over a seller's loan.
It's important to note that assumable mortgages are typically only available for certain loans, like FHA and VA loans. If your seller has one of these loans, this may be something to discuss with your real estate agent. But first, let's break down how these mortgages work.
Taking on an assumable mortgage means that the buyer can have the seller's loan transferred to them with lender approval, keeping the loan terms the same.
Advantages
Low interest. Assumable mortgages can be great for the buyer if the seller's interest rates are much lower than rates being offered currently, or if the buyer's credit history isn't ideal.
Decreased closing costs. Taking on an assumable mortgage can mean decreased closing costs, depending on the details of the sale.
Marketing strategy. This is a pro for the seller, who can use their assumable mortgage to entice buyers in a saturated market.
Disadvantages
More mortgages. If the value of the home is greater than what's left of the mortgage, and the buyer doesn't have enough cash to meet the difference, the buyer could have to take on a second mortgage, which may not be ideal.
Seller obligations. Another note for sellers: Make sure you are fully released from loan obligations before signing anything over. If your name remains attached and your buyer defaults down the line, you could be held accountable.
As always, be sure to talk to your real estate agent, lender and financial advisor before making any major loan decisions.
As a Member of the Top 5 in Real Estate Network®, I, along with my team, have a wealth of real estate and homeownership information that may be of help to you. Feel free to contact our team any time to learn more about this important information, and be sure to forward this article on to any friends or family that may be interested as well.
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