There Is More To Assuming A Mortgage

Many clients inquire about properties that are listed as having an "assumable mortgage"; if only it was that easy to take over a mortgage!

The concept of assuming a mortgage payment seems so appealing yet it’s not what it seems. There is a lot more to ‘assumable’ than that.

In a nutshell, an assumable mortgage is a mortgage where a buyer can take over the amount and terms and begin making mortgage payments based on the terms that have been agreed upon.

But nowadays, lenders require the assumer of a mortgage to qualify for the amount and interest rate of the mortgage, so you will still require a down payment (lenders will not finance 100% of the value of an assumable property) and a good credit score.

This can be accomplished by having the appropriate amount of equity built in to the property so that there is the equivalent of a down payment in the property or, you must still provide a down payment out of your own pocket.

With an assumable, you have to qualify for the original mortgage the property was purchased with, so it is not as simple as just taking it over.

Therefore, if you wanted to buy a particular property and you are satisfied with the interest rate and purchase price, your real estate agent would arrange for you to talk to a representative of the lender who holds the mortgage (Wells Fargo, Citibank, etc) about assuming the mortgage. They will take an application from you and assess your ability to carry that particular mortgage, and determine if you will require an additional down payment (by assessing the purchase price in relation to the market value of the home).

If interest rates have risen since the original mortgage was taken out by the seller, the buyer is the party that benefits the most from an assumable mortgage. However, most recently, the situation can be reverse: interest rates are lower than what they were when mortgages of a longer term were taken out.

So, in many cases, when you take in to consideration the pertinent factors when assessing a mortgage (principal, rate, and down payment required) there may not be any benefit for you to assume older mortgages when you consider the rate that your own bank or mortgage broker can obtain for you.

So with an assumable mortgage, you take over the term, current interest rate and payments from the seller, and the seller is liable to the lender for any default by you.

These are just a few of the factors to consider with an assumable mortgage.