What is an assumable mortgage? It is a mortgage that another person can pay the difference in the current equity position and assume the underlying mortgage. In this piece, we discuss the advantages, disadvantages, the process, and how to get it done efficiently. This is not for everyone but if you are having to sell your home and you have one of those nice home loans with interest rates in the 3's or 2’s your home is more marketable than someone that may not have that available to them.
To define what happens when someone assumes your home loan you need to be armed with the right information. Realtors that have been in the business less than 10 years will probably have never had to deal with an assumable mortgage but those who understand how to market it for their sellers can end up getting the Seller more money on the sale of the house. An example of an assumable mortgage in a Real Estate transaction would look similar to this: Take someone who wants to sell their home and have an assumable FHA loan. They Owe $490,000 and the market is selling homes in that neighborhood for $550,000 to $600,000 and the potential seller has an assumable FHA loan with an interest rate of 3.5%. A potential home buyer will have to put down the difference in the sales price and the amount owed on the mortgage. Being able to offer an interest rate in the 3’s will make this home more marketable, but it is not for everyone as you need to be able to put the difference down in cash. So in this example, the house sells on the higher end of the market because of the 3.5% mortgage for $600,000 and the potential home buyer has to come up with $110,000 for a down payment the difference between the $600,000 agreed on sale price and the amount owed of $490,000.
Once a contract is negotiated between the new Home Buyer and the Seller the process begins. If you have a good Real Estate Agent, like an MAE Capital Agent, they would have done the leg work before the house went on the market to make sure the existing home loan is assumable and get the paperwork for when a potential home buyer does come knocking it will be ready for them. The process to get an assumption started is to complete the entire Residential Mortgage Application from the existing lender and provide them with all of your Income documentation, your banking info, and your credit report with a minimum credit score of 620, however, this may vary from lender to lender. You will be applying for the existing mortgage payment, balance, and remaining term. You will need to be able to show enough income to qualify for the existing mortgage by being able to prove that the mortgage payment and your existing monthly bills are no greater than 49.99% of your income. This is done by providing pay stubs tax returns and W2s.
Once you have gathered all the documents that the existing lender needs to issue an approval by analyzing all the documents provided such as pay stubs, bank statements, retirement statements, tax returns, W2s, and any other supporting documentation they require. If you are involved in an assumption transaction you should be prepared to wait as lenders are just getting the message that this is a viable way to sell a house, they have not fully ramped their assumption departments so it could take a bit, up to 30 days once they have the documentation. This is why you need a Real Estate professional on both ends that understands the process. At MAE Capital Real Estate and Loan, most of our Agents hold both a Real Estate license as well as an NMLS mortgage license so they can help talk the talk with lenders with trying to get an assumption accomplished. Knowing how the process works and being able to understand what the existing lender is saying is invaluable as this could save the transaction from falling through or taking longer than it should. Also when you bundle your services with MAE Capital Real Estate and Loan you will save money on the sale of your home and the purchase of your next home.
As a seller, you may not know if your loan is assumable without talking to your existing mortgage holder. If you know you have an FHA or VA loan you know those can be assumed. If you are a Veteran, you should know that if you allow your VA home loan to be assumed by a non-veteran you will not be able to use your VA benefit to buy a home again until that home loan has been paid in full. So, if you are a Veteran you may want to look at this more carefully especially if you are planning on using the VA home loan on your next home purchase. If this is a process that you are interested in please contact one of our Realtor/ Agents today as you will have a pro on your side.