Assumable Mortgage
Candlefocus EditorAdvantages of Assumable Mortgages
The biggest advantage of an assumable mortgage is that the buyer can acquire a loan at a lower interest rate than they would be able to get on their own. When interest rates are rising, as they have been in recent years, buyers who can assume an existing mortgage benefit financially by getting a more favorable rate than they are likely to qualify for otherwise. A good-sized difference can potentially save a homebuyer tens of thousands of dollars over the course of the loan.
Another advantage is that the buyer can avoid the often lengthy mortgage approval process, including the review of financial data and the usual credit checks and other underwriting processes associated with a conventional loan. Since the mortgage is already in place, the mortgagee (loan holder) can just transfer the mortgage to the buyer.
Unfavorable market conditions also make assumable mortgages a better option for some buyers. For instance, if mortgage rates have dropped since when the current loan was initiated, the buyer can assume a loan at a rate that is much lower than current market rates.
USDA, FHA, and VA Loans That Are Assumable
Some government-backed loans can also be assumed. USDA and FHA loans are assumable but are not always easy to find. While the buyer may not always be able to assume the existing loan, the seller may be able to qualify for a new loan, allowing the buyer to assume that new loan.
VA loans are assumable if the buyer can assume the seller’s eligibility for the loan program. The buyer does not need to be a veteran to assume a loan. That putting a non-veteran in the title of the property does not cause it to be disqualified from eligibility as long as the borrower remains eligible for veteran’s benefits.
In order to assume any type of mortgage, the buyer must be able to qualify for it, regardless of the status of the existing loan. This means that home buyers need to provide documentation that they can handle the financial responsibility of making mortgage payments, including income, asset and liquidity verification.
Although assumable mortgages offer many advantages to buyers, they can be difficult to find and the process is complicated. Buyers looking into assumable mortgages typically work with mortgage brokers or real estate agents who have experience with the process.