Looking for options to buy a house? Are you worried about being able to afford a new house and know someone with a VA or FHA loan that needs to get out of their house loan? Assuming a mortgage might be a good solution for you.
What is an Assumable Mortgage?
An Assumable Mortgage is a mortgage in which a person can assume another person’s FHA or VA mortgage, often with lender approval, and with little or no change in terms like interest rates.
Assumable mortgages are sometimes done only as an agreement between the seller and the buyer, which requires a level of trust between the two parties.
If you do not personally know someone who is trying to get out of their house loan, you can sometimes find assumable mortgages by searching for the term on the home listing website.
An assumable mortgage is hard, but not impossible to find and could be a great fit for you if you can find the right one in the ideal conditions. Like everything, it has many pros and cons.
Pros
- A lower interest on the assumed loan
- Fewer closing costs
- If the value of the home has not changed, you only have to pay what is remaining in the mortgage.
- If you are in a good, close relationship with the seller, you may be able to work together to make for a good deal.
Cons
- If the property has increased in value since the home was purchased, you must pay the difference to the seller. You may have to take out a second mortgage to cover the change in value. The second mortgage will be at the current interest rate, which is likely to be higher than the original loan. Taking out a second mortgage may jeopardize the assumed mortgage, so if you can pay the difference upfront without another loan, it would be best.
- There are many ways that a seller can take advantage of a buyer. For example, if it is an informal agreement, the seller can make unreasonable requests or evict you.
- On the other hand, if paperwork is not filed properly, the buyer or the seller can take advantage of the other by leaving the other on the hook for defaulted loans and fees.
- Specific conditions must be met for qualified mortgages.
Assumable mortgages could, in some rare cases, help you to afford a house when you feel like you cannot. It is worth looking at if you are looking for a home in today’s market.
