Assumable Mortgage: What does it mean for you?

FHA and VA insured mortgages are assumable. This means that a buyer can take over, or “assume” the mortgage under certain conditions. With lender approval, the buyer agrees to make all future payments on the loan as if they took out the original mortgage.

What’s Great about an Assumable Mortgage

The greatest benefit of an assumable mortgage is that it can save the buyer hundreds of dollars a month, and tens of thousands of dollars over the life of the loan. The seller is released from responsibility on the loan, and the buyer gets an interest rate that might be significantly lower than what’s available today.

An assumable mortgage is a terrific advantage for both the buyer and the seller! The assumability of the original mortgage loan is a great selling point for a seller marketing their property, and it gives potential buyers access to mortgage terms that are better than today’s.

Click here to learn more.

Things to keep in mind

The seller should make sure to get and keep, the paperwork releasing them from liability. This clears them from any obligation on the loan in case the buyer doesn’t make their payments on the old loan. The lender executes this release of liability and may do so as part of the transfer, once the buyer is found to be creditworthy and approved for the loan.

Depending on how much equity the seller has on the existing loan, the buyer may need to get a second mortgage to bridge the gap between the loan balance and the sale price of the home, or pay cash for the difference. We can help with that! A second loan may offset the benefit provided by assuming the existing mortgage, and in some cases this may not make financial sense. In light of this, a seller with a low rate and little equity in the mortgage may give a buyer the greatest benefit in an assumable mortgage.

In the case of a VA loan, the veteran’s entitlement benefit remains attached to the loan. The seller will need to request the VA to restore his/her entitlement benefit or forfeit this with the loan.