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Is your mortgage assumable?

Mortgage and Lending with Cranbrook Loans NMLS #134090

Update-As I write this, current interest rates are up significantly. This makes this blog even more important than what it was back in 2018. 

With mortgage interest rates on the rise it's becoming very important for every Realtor to understand the potential benefits of assuming the seller's current mortgage.

We have all been in a closing when the closing agent pulls out the "Your loan is assumable" disclosure. Do you know what this means? It means that if the buyer qualifies they can step right into the shoes of the current homeowner and assume their current mortgage. Why would a buyer want to do that? If the current rate being offered by a lender is 5%, and the seller's loan is at 3.25% it could a savings of more than $250 a month on a $250,000 loan.

The buyer must qualify under the same terms that the current mortgagor qualified under. Most assumable loans are FHA and VA loans so they have to quality under those terms. The seller will need to call their current mortgage servicer and ask for an assumption application package. The potential buyer would need to fill it out and submit it back to the loan servicer along with a copy of the purchase agreement. Check with the servicer on how long this process takes. This is not a profit center for the lender so they don't always have the proper level of staff to take care of these requests.

There are several situations where this is a great option; the buyer recently purchased the home and now needs to move, selling to a family member or a deal where the current loan amount and the buyer's down payment equal the purchase price of the home.

There are many issues to consider before you go down this road, not the least of which is addressing who and how will the commissions be paid? There are a few fees, who will pay them? Typically the servicer will not require title insurance to close the transaction. 

One situation where this may not work well is when the loan amount and buyer down payment fall short of the purchase price. At one time lenders offer "wrap around" mortgage for this perpose. I haven't hear of a lender that does these. Please let me know if you know of one.


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