Assumable Home Loans
Tracy with Tri County mortgage, is a residential mortgage loan originator with licenses in Arkansas and Texas. Traci recently visited with us about Assumption Home Loans.
There are benefits and drawbacks to both the buyer and the seller to doing Assumption Home Loans. Now, typically, most conventional loans are not going to be assumable. Whereas the FHA, the VA and the USDA rural development loans are assumable. For buyers, let's say they are qualified and interest rates have jumped up to, 8 percent and the seller has a 4 percent fixed, 30-year mortgage. That's a big difference in interest rates which is going to make a big difference in their payments and the interest over the payable life of the loan. So that's a big benefit.
What you need to be aware of is how much equity the seller has in their home. The difference between the sales price and the seller's current balance that you're trying to assume is what you're going to be required to come up with for the down payment. If you don't have the assets available for a down payment, you want to look at just qualifying for a regular loan or a zero down payment loan.
The benefit to the seller is being able to market that home, compared to other houses in their area with a low, fixed, assumable interest rate mortgage. That's a big plus for you! When you do an assumption you're going to ask for an assumption package. The buyer can't simply say "I want to step into your shoes, move into your house, and start making the payments". They have to do it legally by requesting the assumption package from the seller's current lender. They are going to have to credit qualify for that just as though they were buying a home from scratch. The mortgage lender will look at their income, their assets and their credit.
As a seller, you're going to want to make sure that you get your liability released. If you don't, and let's say, 5 or 10 years from now that buyer suddenly defaults, that lender can come back to you as the seller and say, "Hey, you're on the hook. You need to start making those payments".
There are definitely benefits and drawbacks to doing Assumption Home Loans. You want to visit with your lender and talk to your Realtor about doing this.
If you have any questions, feel free to call Tracy with Tri County Mortgage toll free at 844-865-4200.