Finding a house with an assumable mortgage these days could prove to be a real find – but it is not very common. Typically only the FHA and the VA uses assumable mortgages, which basically means that another person can simply take over the house and payments. Here is some information that you need to know if you are thinking about taking over an assumable mortgage.
Getting a house with an assumable mortgage can make things easier for you. It means that you may be able to save considerable money, as well as have a speedier process involved. It can really be to your advantage, too, because the lower interest rates that are probably on it will enable you to save money. Not having closing costs and a few other expenses can also mean saving even more. You will, however, if the mortgage was obtained after 1989, need to be approved by either the FHA or VA before you can assume the mortgage.
The greatest amount of savings can be gained if you can simply pay cash for the house – the balance between the value of the mortgage and what the house is selling for. For instance, if the house is selling for $125,000, and the mortgage is worth $85,000, then the amount of cash you would need is $40,000.
In most cases, though, you would probably need to finance the balance that is needed, and this, of course, would be at the current market rate of interest. It is this financing that will slow the process down. For this amount, you would need to go through the whole gamut of getting a mortgage – including approval, finding a lender, closing costs on the amount borrowed, and more.
One matter about this that you need to consider, however, is the interest rate. Assumable mortgages are usually adjustable rate mortgages. This means that there is a fixed interest rate period of time, and after that, the interest rate becomes adjustable according to the market – either monthly, or yearly. If the current trend shows that this rate may rise to nearly unreachable payments for you before long, then you may do well to consider simply financing the whole thing. Having it set at a fixed rate is certainly safer if you see the rates increasing.
Assuming a mortgage does mean that you need to be approved by the lender of the mortgage. You will need to get a package from the lender that describes all the requirements that need to be met. While there will be some fees attached, it still will be cheaper than getting it financed. You need to be sure, however, that this really is the case. If interest rates start rising rapidly, you will need to consider financing the whole thing. To be sure, you should sit down and calculate both scenarios and see which one will be cheaper over the full length of the mortgage, or mortgages involved.
A seller of a house with an assumable mortgage should make sure that he or she has it in writing that are indeed freed from any liability of the mortgage. They also need to be sure to hold that document carefully just in case any questions should arise later if the new buyers default on payments.