One strategy that may work in some home buying situations is to assume the home seller’s mortgage. In order for this to work, the home seller will have to have either an FHA assumable mortgage or a VA assumable mortgage.
Unlike conventional mortgages, FHA and VA loans are set up so that they are assumable by someone else. Assuming someone else’s mortgage means that you if you qualify and go through with signing the necessary legal paper you can actually take over someone’s mortgage as if you had gotten the mortgage yourself. If the assumption is approved, basically the your name replaces the original person’s name who got the mortgage in the first place.
When To Consider An Assumable Mortgage
You may consider assuming an FHA home loan from a home seller to buy a home when:
Interest rates are going up
Home values are slightly lower than existing mortgage balances
With mortgage rates threatening to go up in 2010 and home values all over the place relative to respective mortgage loan balances, you may find a good home purchase by finding a home seller who has a FHA or VA mortgage on their home. Real estate agents and title companies can help with finding the right home seller.
Home Seller’s Perspective on an Assumable Mortgage
From the perspective of the home seller, if you can find someone to sell your home to who can qualify, you can actually have them assume your mortgage. When they assume your mortgage, you are legally released from obligation and they take over your mortgage legally.
The person assuming your mortgage must go through the financial and credit qualifications required for your mortgage program. If they qualify, they can assume your mortgage.
Home Buyer’s Perspective on an Assumable Mortgage
From the perspective of a home buyer, if you can find someone who has an FHA mortgage on their home that they are selling you can possibly assume their current mortgage if you qualify.
You will have to make an application with a mortgage lender like you were going to get your own mortgage, but you will be making your application with an FHA mortgage lender to assume the home seller’s mortgage.
You will need to be a Vet or have a VA certificate of eligibility to assume a VA mortgage.
Advantages of Buying A Home With An Assumable Mortgage
The big advantage is that you can save a fair amount of money in closing costs. You will have some fees associated with the mortgage application and having the assumption papers handled with your lender and a title company.
Another big advantage is that you are bound by the interest rate that is already in place which is a big deal if market interest rates are higher than the note rate for the mortgage you are looking to assume.
A third advantage of assuming an FHA or VA mortgage is that you can assume it independent of the home’s value. If the home’s value is less than the mortgage, but you feel that the home is perfect and what you want, then assuming that mortgage could make perfect sense to you.
Buying a home by using assuming someone’s mortgage is not for everyone and it doesn’t work in all situations. But if you can get it to work, it could be a great deal for both you and the home seller.