Do you remember hearing about loan assumptions many years ago? Perhaps you have heard of the term but don’t really understand how it works.
Assuming a loan was a common practice back when the interest rates were high and rising. Back then, someone applying for a loan might get a loan with a higher interest rate than that of the seller’s rate. Besides that, the buyer would have to cover the equity in the home.
Today, interest rates are in the 3 and 4 percent range and they haven’t gone up in a long time so it may be better to go ahead and get your own loan instead of assuming the seller’s loan. If the amount due on the mortgage is about the same as the value of the house, then it may be a good idea to assume a mortgage.
In the event you are thinking about assuming a mortgage, here are some things to consider before moving forward:
- Apply for a loan outright and see what kind of interest rate you can get. If the difference in interest rate is at two percent or more and the interest rate is lower, go ahead and get your own loan.
- Determine whether it is more cost effective you borrow the money directly from a mortgage company or bank. Many times the fees assessed by the bank are much higher than assuming a loan from the seller.
- Obtain a mortgage statement from the seller’s lender. This will allow to you see how much is really owed on the house.
Pitfalls of mortgage assumption:
- Buyer can end up with inheriting the problems the seller has with the house
- Seller can rid themselves of a house that is dead weight on their budget.
- Sellers use mortgage assumptions when they are facing foreclosure and they aren’t having luck with the way most people sell their houses.
Things that make it a challenge to do a mortgage assumption
- Banks don’t like them
- Only VA, FHA and USDA loans can be handled in this way.
- Most real estate professionals don’t encourage their sellers or buyers to use this method.
- Not very popular because of its restrictive aspects
Wrapping up the important points about mortgage assumption.
- To apply for a mortgage assumption you will have to go through the process of applying for the loan.
- It can take as long as three months.
- The bank may check to ensure that the buyer is giving the seller much of the equity in the house.
- It may be best suited for a couple getting a divorce where one of the spouses gets the house. The spouse not getting the house will need their name taken off the mortgage.
If you discover an assumable loan won’t work for the buyers you are interested in buying your house and you still need to sell, contact Kinship Real Estate, your home buying friend when you need to sell fast. We can make a fair cash offer or discuss other options so that you can sell your house as-is to us. We can close in less than 30 days. You don’t have to pay Realtors commissions.
Kinship Real Estate is positioned to help you make the sale of your house potentially seamless. Feel free to contact us. If we can’t help your directly, we may just be able to refer you to resources that can help you.
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