Each prospective home buyer looks for different features when comparing homes for sale. A few decades ago, some buyers sought out home loans that could be easily assumed by the buyer. Although the requirements are much stricter now, home buyers can still assume certain types of existing home mortgages.
An assumable mortgage is potentially attractive because the interest rate on an earlier loan may be lower than current market rates. Some of the costs associated with mortgage origination may be avoided if an existing mortgage is assumed. However, the seller of a home with an existing mortgage likely has equity in the home. Therefore, you must usually make a larger down payment or take on a second mortgage.
Conventional home loans bought and owned by Fannie Mae or Freddie Mac is generally not eligible for an assumption. Conventional mortgages typically contain a due-on-sale clause, eliminating the possibility of an assumption. For that reason, most assumable loans on homes listed for sale are mortgages that are directly guaranteed by the federal government.
Up until the late 1980s, FHA home loans could be assumed with relatively few restrictions. To assume an FHA loan now, a home buyer must meet the same qualifying standards as a new borrower. Because of the lower outstanding balance on an older mortgage, however, you may find it easier to meet the lender's required debt-to-income ratio.
An assumable mortgage is a practical option if you are prepared to buy the seller's equity with an appropriate down payment. If the house has appreciated in value since the inception of the existing mortgage, an even larger down payment is required up front. If a second mortgage is necessary, ensure that its interest rate and costs do not completely negate the advantage of the loan assumption.
You don't necessarily have to be a veteran to assume a VA loan. As with an FHA loan, you must meet the lender's underwriting criteria. If a VA mortgage is assumed by a veteran, the home seller then regains their entitlement to obtain another VA loan. However, if the mortgage is assumed by a nonveteran, the seller does not regain their VA loan entitlement until the mortgage is paid off.
Home sellers who are willing to allow the assumption of their existing mortgage usually mention that fact in their listing. Some homeowners are not aware that loan assumptions are still possible, so you may have to occasionally initiate a mortgage discussion. Contact a real estate professional for assistance in searching for assumable mortgages.
Contact an agent that can help you search real estate listings in your area for more information.
Welcome to my website. My name is Larry Silva, and I want to talk a bit about private mortgage insurance. You may have heard the term PMI mentioned when you were in the process of purchasing real estate. When I first heard my lender talking about PMI, I was very confused. It was my realtor who sat me down and explained what private mortgage insurance was and when someone is required to purchase it. He told me that PMI is not lifelong insurance; it can be cancelled when the mortgage principal balance reaches a certain point. Once it was explained to me, private mortgage insurance was no longer a mystery or a confusing concept. I would like to pass on what I learned and hope that you find it to be of value.