The Ins and Outs of Assumable Loans
If you’re in the market for a new house, then you’ve probably come across the word "assumable" on a home’s spec sheet. That term "assumable" is a key word in the mortgage lingo, one that can possibly be advantageous for you in your next home purchase.
What Is an Assumable Loan?
An assumable loan is a loan that you "assume" or take over from the current owner. The new borrower assumes the same rate on the loan as well as the other loan obligations. The borrower, however, still needs to qualify for the loan. If the borrower does not qualify, then a new loan will need to be taken out to finance the purchase.
Why Would Someone Want to Assume a Loan
If you still need to qualify for the loan, why would you want to assume a loan that’s someone else’s obligation? It’s because the interest rate could be much lower than existing rates. For example, if the assumable loan has a fixed rate of 5%, and the current mortgage rates are going for around 7%, then you can save some real money on your monthly payments. On the flip side, however, if the current mortgage rates were lower than the assumable rate, it wouldn’t be the smartest move to take over the loan.
Other Things to Check Out
Before you decide to jump on the assumable wagon, you should find out some of the following loan features:
- The balance of the loan – If the balance of the loan is only 50% or so of the total money that you need to borrow, you’ll have to apply for a second loan as well unless you’re ready to pay 50% down.
- The terms of the assumable loan can change – Just because it’s an assumable loan doesn’t automatically mean that the interest rate will remain the same. If you’re a bad credit risk or don’t have the finances (i.e. steady income) to support such a loan, the lender may not approve the loan or may charge a higher interest rate. So before you assume that you can take over the loan, make sure that you qualify for the loan and at its existing interest rate.
Written By Homelist24, lists and ever-changing list of properties for sale and rent, whether its homes for rent, apartments for sale, or houses for sale.
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Linda Zimmerman, GRI, e-PRO, SRES |
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