An assumable mortgage is a home loan that is taken over by someone else. When the original owner is no longer capable of paying off their mortgage, they may be able to sell their property and have the new buyer assume the debt with lender approval.
The buyer and new owner of the house will then agree to pay off the rest of the loan as if they were the ones who originally applied for the mortgage. One advantage to the buyer is that there’s no need to apply for a mortgage to close a real estate purchase.
Is an assumable mortgage a good idea?
Because an assumable mortgage has a lock-in interest, it could seem like a great idea to buy a house with an unpaid loan. Here are some more reasons to help you decide whether you should go for an assumable mortgage or not.
- Only FHA (Federal Housing Administration) and VA (Veterans Affairs) loans are eligible as an assumable mortgage. This is due to stricter mortgage regulations.
- You must meet certain requirements and receive lender approval as you would for a new loan if the original FHA loan was made before December 1, 1986. If you are to assume a VA loan, you will also be required to comply with the Creditworthiness Assumption process.
- You will have to pay upfront the total amount of equity the home has. If the property has little equity, you’ll only be paying a lower upfront cost.
If you want to assume an existing mortgage, make sure to determine whether all the deciding factors are in your favor.