Mortgage Assumption? What's That?

Maybe you have heard of a mortgage assumption in real estate or maybe you have not. With the mortgage rates being higher today than they have been in the last few years, we are seeing mortgage assumptions again in the local real estate market. I am currently handling a mortgage assumption transaction right now for the first time in a very long time.

An assumable mortgage allows the prospective buyer to purchase the home by allowing the buyer to take over the seller's current mortgage. For an assumption to work, the homeowner's mortgage must be assumable. Most conventional mortgages are not assumable. Loans that are insured by the Federal Housing Administration (FHA), Department of Veteran Affairs (VA) and United States of Agriculture (USDA) are typically assumable. The seller must agree to the buyer assuming their mortgage.

At the time that I am writing this, mortgage rates are around 6.5%. If you are looking to purchase a home and a lender quotes you a mortgage rate of 6.5% - and the home that you are interested in has an assumable mortgage of 4.125% - then you need to explore this option. This means major savings on your monthly mortgage payment. For example, if you are purchasing a $500,000 house with a ten percent down payment at a 6.5% interest rate, you can expect your monthly payment to be around $3,200. Change that interest rate to 4.125% with all other terms the same, and you are looking at a $2,600 payment. This is a savings of $600 a month!

The costs to assume a mortgage vary with the lender. You need to have an open dialogue with the mortgage holder of the home that you are interested in. The fees associated with a loan assumption are typically a percentage of the remaining unpaid balance of the current mortgage. Another benefit of a loan assumption is that an appraisal is not required. This saves the buyer around $500-$600.

In today's market with interest rates in the sixes, it would wise for you or your Realtor to check with the homeowner to see if their loan is assumable. Many homeowners have mortgage rates of between 2% and 6%. If you are considering selling a home, check with your mortgage holder to see if your loan is assumable. What a great marketing tool your assumable mortgage could be when you go to list and sell your home!