When you begin to finance your home, you may hear many mortgage terms that you’re not all that familiar with. One of the most common is “assuming a mortgage.” This term has been around for many years and it comes with many advantages and disadvantages both homebuyers, and sellers as well.
Mortgage Assumption: What Is It?
We’d like to help you understand this term in its entirety. Mortgage assumption is a financing agreement that enables an individual selling their home to transfer their mortgage balance, rate, and terms to you (the homebuyer). More or less, you’d be assuming their mortgage so there would no longer be a need to apply for your own mortgage loan.
If you’re shopping the housing market but you’re experiencing difficulties getting a good interest rate or financial approval, then you may want to consider assuming a mortgage.
However, for the seller this can be a huge disadvantage should the buyer fail to make their monthly payments.
Can I Apply to Assume a Mortgage?
If you are a potential buyer than Yes, you too can apply to assume a mortgage. However, the qualifying decision is ultimately left up to the bank or lender administering the mortgage transfer. As with any mortgage, when you’re being qualified your credit and income will be examined.
If you’re applying with a financial institution but worried about your credit, you’d have a better chance with a mortgage assumption than getting a new loan.
Buyer Affects with a Mortgage Assumption
As previously mentioned, for buyers there are some advantages such as securing a lower interest rate. This benefit can be substantial especially if the rate is even lower than the current market rate. Assuming a mortgage is also a great way to eliminate closing costs and new loan fees. During a mortgage assumption these fees are usually waived.
One very important consideration in making the decision to assume a mortgage is the term left on the original mortgage. You want to ensure that there is enough time left for you to pay back the remaining balance. For instance, if the original mortgage was for 20 years and the seller was 10 year into the term, that would mean you would only have 10 years to pay off the balance of the mortgage. Speak to your mortgage broker to learn more about additional fees that can also be added, such as mortgage insurance premiums.
There are a number of different financial options out there for buyers, but finding the right mortgage solution can present its own challenges without an experienced financial expert helping you along the way. Ask a broker at AKAL Mortgages to explain all the options available to you based on your personal financial situation.
When we say Yes! We stand behind our promise.