What Is A Mortgage Assumption?

What Is A Mortgage Assumption?  A Mortgage Assumption is a feature that both FHA and VA Loans have.  The Assumption feature permits a Homeowner that has a FHA or VA mortgage to let Buyer who wants to purchase their home, to take over their monthly payments at the same term and interest rate that they presently have. 

Why is this feature important?  Why would anyone want to Assume a mortgage today since interest rates are so low?  The answer to those two question are simple.  No one would want to take over a mortgage today at a higher interest rate than they can get on a new mortgage.  BUT it is an extremely important feature for anyone purchasing a home today with a FHA or VA Mortgage, when they go to sell their house in the future, and the interest rates are much higher.

For example, in 1981 I purchased my house from a Homeowner that had a Connecticut Housing Finance Authority (CHFA) Mortgage.  Most CHFA Mortgages are FHA insured, and his was.  He had owned the house for only two years, the balance on the mortgage was $50,000, and he was selling the house for $57,000.  The interest rates at that time was 15%, however, the CHFA interest rate that this Seller had was 7.75%.  I contacted CHFA, gave them my financial information, and they gave me permission to Assume the mortgage.

In Assuming a mortgage you can only Assume the outstanding balance on the mortgage.  So I gave him the difference between what he was selling the property at and what he owned, $7,000.  I took over (Assumed) his payments at 7.75% for the remaining 28 years.  CHFA released him from all liability on the property, and my monthly payments were HALF of what they would have been at the 15%.  It was a great deal for me, a quick sale for him, and he got his full asking price.

Interest rates will sooner or later start to go up again, and when they do, those that are doing FHA and VA Mortgages today are going to have a very valuable selling feature when they go to selll their home.  Having the ability to let a Buyer purchase your home by simply letting them Assume your mortgage (they have to qualify through the Lender like I did) is a tremendous advantage, especially once interest rates double again.  This option can be the difference between a Buyer choosing to purchase your house over another, and being able to get a higher asking price.  Assuming a Mortgage is a win win for everyone involved in the transaction once interest rates start to climb, which might not be in the not to distant future again.

USDA Mortgages may also be Assumable, but they have limitations that FHA and VA do not have.  The biggest difference between the Assumable feature of FHA and VA, and the Assumable feature of a USDA Mortgage is that USDA does not release the original Borrower from the liability of the mortgage which is a major draw back.

This blog is only an overview of What Is A Mortgage Assumption?  If you are considering doing an Assumption of a Mortgage, you need to talk to a local Mortgage Professional, who will go over with you all the step by step details that are involved in this process.

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com