So, what does it mean for a mortgage to be assumable? An assumable mortgage provides a buyer with an opportunity to purchase a home by taking over the seller’s mortgage loan. A buyer can purchase a home with an assumable mortgage to take advantage of financing with a lower interest rate.
What loan types can be assumed? Government-backed loans – FHA, VA and USDA loans – are assumable. Buyers will need to apply with the lender and qualify for the loan. Conventional loans are not usually assumable due to a clause in loan documents that require the mortgage to be paid off if the property is sold. According to Mortgage Insider, the only conventional loans that can be assumed are the ones that have adjustable rate mortgages (ARMs) from Fannie Mae and Freddie Mac.
“Assumable mortgages are becoming an intriguing outlet for buyers and sellers in this market,” says Andy Dugger, Director of Business Development for Amanda Howard Sotheby’s International Realty. “Sellers want to be able to sell for top dollar and buyers wish they hadn’t missed the insanely low rates over the past two years. It is however, important that agents and their clients know what challenges exist in an assumable loan over that of a more traditional transaction,” Dugger says. “Timelines can be slower, cash at closing may look a little different as well. If someone is considering this option it is important that they conduct research early on with an experienced agent and mortgage professional.”
According to Zillow, there are advantages for buyers and sellers, especially if the seller’s mortgage rate is lower than the current market rates. One disadvantage could be if the buyer assumes a mortgage that the value of the home is higher than the mortgage that remains on the home. The buyer will need to make up the cost of the difference. For example, if a buyer is looking to purchase a house with a price of $500,000 but the loan that the buyer would assume is only $350,000, the buyer will have to make up that $150,000 difference.
If sellers are interested in advertising a home with an assumable mortgage, it could make it more attractive to buyers worried about the state of the market. If sellers want to know if their current loan is eligible, they’ll need to make sure there’s an assumable clause in their contract. That clause will allow sellers to have a buyer assume the mortgage with all of its terms.
Does an assumable mortgage sound good to you? Buyers and sellers need to talk to their mortgage experts to see if assumable mortgages are a right fit and to see if they qualify.
If you have questions about assumable mortgages, reach out to Mortgage Right-Huntsville at 256.751.8010 or check out www.mortgageright.com.