Five Things You Must Know About Mortgage Loan Assumptions1/26/2011 A loan assumption occurs when a homebuyer takes over making payments on the seller’s mortgage. This is often done when interest rates are high in the marketplace and the seller’s mortgage comes with a lower rate attached. Some first time home buyers feel that this is a great way to ease into a mortgage. It can be, but there are costs as well as benefits attached. Most loans aren’t assumable. Many lenders are willing to allow mortgage assumptions, but it depends on the seller’s loan type, and you’ll have to request it specifically. Before you do this, you’ll need to know how an assumption works. You still have to qualify for the loan. If you have a low credit score, the lender is unlikely to allow you to take over the seller’s mortgage. You’ll have to prove sufficient income, and you’ll need to make a down payment. You need to know the loan you’re getting into. Make sure you know every detail of the mortgage you’re assuming. If you need to, hire a professional to review it. You’ll still have to pay the difference. If the seller owes $90,000 on the home and is asking for $120,000, you’ll still have to pay that additional $30,000. You may be able to take out a new mortgage to cover it, and if you’re assuming a larger loan already, you may not qualify for the lowest mortgage rates on your second loan. Make sure the assumption is worth it. It’s only worth assuming a loan if you can’t get a lower rate and better terms on your own. With interest rates as low as they are today, you probably don’t need to assume a loan, and most sellers with higher rates have already gone through a refinance to bring their rates down anyway. The bottom line is, an assumption can be highly useful in some circumstances, but you likely shouldn’t waste time with it. |
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