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Understanding Mortgage Loan Assumptions for Home Buyers

by Kimberly Johnson
Understanding Mortgage Loan Assumptions for Home Buyers

Understanding Mortgage Loan Assumptions for Home BuyersUnderstanding Mortgage Loan Assumptions for Home Buyers

One of the ways to be able to get a house is through mortgage loan assumptions. When considering doing this, it’s important to consider the timing and the climate for loan assumptions. FHA and VA loans allow loan assumptions while other types of loans won’t. Other loans will require you obtain a house through filing a loan application to lenders and going through the usual process of loan application. Other people prefer “subject to” loans rather than make mortgage loan assumptions. Even though this is quite a risky move, some people still prefer it because they won’t really have to have a good credit history (unlike mortgage loan assumptions) in order to buy a house.
Let’s say that you want to invest on wake Forest real estate and have gone through Wake Forest homes for sale. If you meet a seller willing to do mortgage loan assumption, here are a few tips to keep in mind:

  1. Compare interest rates – It sounds very basic but some people do assume that since the loan has been taken out some years back, that the interest rates then would be better than interest rates now. Even a 2% difference in interest rates can add up to make a huge difference in your finances in the years to come.
  2. Compare loan fees – Since you’ll still need to apply for a loan (and qualify for it) in order to go through with mortgage loan assumptions, you’ll need to pay for several fees as well. Of course the fees would not be as big as when you take out a new loan, but it’s still good to ask about them just so you know.
  3. Beneficiary statement and mortgage – To make sure about how much is still owed on the property and how much of the loan is assumable, get a beneficiary statement and a copy of the mortgage. This is an important step in order to help you gauge whether you’d be better of getting a new loan rather than assuming the existing loan, in terms of the amount you’ll end up paying up front and over the years through mortgage.

While loan assumptions may initially sound like a good idea, some people prefer to take out a new loan because of a few reasons. Sometimes, it’s a matter of the difference in interest rates. Other times it’s something more definitive, such as the fact that alienation clauses in mortgages give the banks the right to accelerate the loan due to alienation. More often than not, banks are just happy that somebody will assume the mortgage and it’s going to be business as usual for them. However, some people are unwilling to take a risk, and with good reason. After all, when a loan gets accelerated, they’ll have to pay the outstanding balance on the mortgage even if they’re not prepared to do so.
Another reason is that since the house already has some equity built on it (depending on how long the seller has been paying the mortgage of the property), some people are financially unable to meet the difference of the loan and the price of the house. That is, unless the owner is willing to do seller’s financing.

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