• When potential homebuyers have found the perfect home and are ready to make an offer, they first need to obtain financing and take out a mortgage from a lender. There are many different loan products available but one that many people have never heard of is called  an assumable mortgage. This type of loan is an alternative to the traditional mortgage and is quite different. With an assumable mortgage, the home buyer has the ability to take over the existing mortgage of the homeseller as long as the lender of that mortgage approves. Assumable mortgages are a unique lending instrument that allows someone else to take over the payments for you.

Assumable mortgages are very different and are also usually not very common today's market but depending on your situation, they may work for you. Below are the basics of assumable mortgages and what they can do for you.

How They Work

An assumable mortgage works in that another person can take over the loan that was originally issued to someone else. In order to assume the mortgage, the purchaser must qualify for the loan and pay closing fees, including the appraisal cost and title insurance. This can be beneficial for a piece of property that has been difficult to sell. A potential buyer can take over the current mortgage rather than obtaining their own financing. If you are in a situation where you need to sell a home quickly this can be an option.

Benefits of Assumable Loans

The process of converting the original loan to an assumable mortgage, is relatively simple. Because the buyer will not need do go thru the closing process or obtain a property appraisal, the entire process can be completed quickly. 

If the original loan was written during a time when interest rates were low, that is a big benefit to the buyer. The buyer is guaranteed the original interest rate, they do not have to take whatever rate the market is at currently. dictates to them.

If you are the seller and need to sell the home quickly, offering an assumable mortgage is a big attraction to buyers. 

Disadvantages of Assumable Loans

One risk for this type of mortgage can exist for the seller of the home. Some assumable mortgages can hold the seller liable for the loan itself even after the assumption takes place. Thus if the the buyer were to default on the loan, potentially the seller could be left responsible for whatever the lender is unable to recover. The homeseller can avoid this by indicating their release their liability in writing at the time of the assumption.

Sometimes large down payments can be required and could be difficult for some buyers to obtain.

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