Are All Mortgages Assumable? A Guide for Homebuyers

How can I find a home with an assumable mortgage home?

Finding a home with an assumable mortgage requires a bit of research and strategy. Here are some ways to locate these unique property opportunities:

Work with a real estate agent

An experienced real estate agent can be invaluable in this search. They often have insights into local listings and can identify homes with assumable mortgages, saving you time and effort.

Search online real estate listings

Many online real estate platforms allow you to filter search results to include only homes with assumable mortgages. If a site’s filter does not have an “Assumable” filter option, enter related keywords like “Assumable mortgage,” “Assumable,” or “Assume. You can also search keywords related to loan types that are assumable, such as “VA loan,” “FHA loan,” or “USDA loan.” Some listing sites also have a loan-type or “Mortgage History” section.

Check assumable loan websites

Depending on your selected buy market, you may find real estate companies with listings dedicated to homes for sale with assumable mortgages. A few examples are these websites serving Washington and Portland. You can also check if Roam serves your community. For a fee, Roam specializes in identifying home listings with low-interest-rate assumable mortgages.

Employ an assumable loan concierge service

Some third-party concierge or consulting companies specialize in guiding buyers and sellers through the assumable loan process. Others provide lists of homes that have assumable loan options. Some examples include Assumption Solutions and Take List.

Networking and word of mouth

Sometimes, the best opportunities come through personal connections. Let friends, family, and colleagues know you’re looking for a home with an assumable mortgage. They might come across leads through their networks.

Real estate investment groups and forums

Join local real estate investment groups or online forums. Members often share listings or tips on available properties, including those with assumable mortgages.

Local classifieds and real estate publications

Don’t overlook traditional sources like local newspapers or real estate magazines. Some sellers might choose these platforms to advertise their homes with assumable mortgages.

What is the process to assume a mortgage?

Assuming a mortgage involves a series of steps that are slightly different from the traditional home buying process. Here’s a straightforward breakdown:

1. Find a home with an assumable mortgage: Start by identifying properties that have an assumable mortgage. Use the strategies mentioned above, such as working with a real estate agent or searching online listings.
2. Review the mortgage terms: Understand the existing mortgage’s terms, including the interest rate, remaining balance, repayment period, and any specific conditions or fees associated with assumption.
3. Get lender approval: Most assumable mortgages require the buyer to get approval from the current lender. This usually involves a credit check and meeting the lender’s criteria, similar to a traditional mortgage application.
4. Negotiate the purchase price: Agree on a purchase price with the seller. Remember, you’ll need to finance any difference between the home’s sale price and the remaining mortgage balance. (More on this below.)
5. Secure financing for the difference: If the purchase price exceeds the assumable mortgage balance, you’ll need additional financing. This could be through savings, a loan, or a second mortgage.
6. Complete the assumption agreement: Work with the lender to complete the assumption agreement. This legal document transfers the mortgage from the seller to you.
7. Close the deal: Finalize the transaction through a closing process, involving signing documents and paying any required fees or charges.
8. Take over mortgage payments: Once the process is complete, you’ll start making mortgage payments according to the original loan terms.

Is it hard to qualify for an assumable loan?

Qualifying for an assumable loan can vary in difficulty, depending largely on the type of loan and the lender’s requirements. For government-backed loans like FHA, VA, and USDA, the process can be somewhat easier, as these programs are designed to make homeownership more accessible.

However, buyers still need to meet specific criteria, including creditworthiness and debt-to-income ratio requirements. For conventional loans, assuming a mortgage is more challenging due to the rarity of assumable options and stricter lender criteria.

In general, while it’s not necessarily hard to qualify, it does require meeting specific standards set by the lenders, similar to a traditional mortgage application.

Pros and cons of assumable mortgages

Assumable mortgages come with their own set of advantages and drawbacks. Understanding these can help you make a more informed decision:

Pros of Assumable Mortgages

• Potential for lower interest rates: Assuming a mortgage might allow you to benefit from an interest rate lower than current market rates. According to research by Creditnews, more than 40% of all U.S. mortgages were obtained in 2020 or 2021 when rates were exceptionally low. Two-thirds of these borrowers locked in rates below 4%.
• Reduced closing costs: Assumable mortgages often involve lower closing costs compared to getting a new mortgage, as some fees are bypassed in the assumption process.
• Faster closing process: The process of assuming a mortgage can be quicker than applying for a new mortgage, speeding up the home-buying process. For example, depending on the lender and loan type, you may not need to wait on a home appraisal.
• Attractive selling point: For sellers, offering an assumable mortgage can make their property more appealing, especially in a market with higher interest rates.

Cons of Assumable Mortgages

• Qualification requirements: Buyers must qualify with the current lender, meeting their credit and income criteria, which can be a hurdle for some.
• Upfront cash requirement: If the home’s sale price is higher than the mortgage balance, you’ll need to cover the difference, often requiring a significant upfront cash payment.
• Limited availability: Not all mortgages are assumable. This limitation can restrict your choices in the housing market.
• Variable rate risks: If the assumable mortgage has a variable interest rate, there’s a risk of rates increasing in the future, potentially raising the payment amount.

By weighing these pros and cons, you can better determine if an assumable mortgage aligns with your financial goals and circumstances.

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How much does it cost to assume a mortgage?

The cost of assuming a mortgage varies, but there are several key expenses to consider:

• Lender fees: Lenders typically charge a processing fee for assuming a mortgage. This fee can range from a few hundred to several thousand dollars, depending on the lender, loan type, and loan amount. The origination fee on a traditional home loan is typically around 1% of the total loan amount.
• Appraisal and inspection costs: You may need to pay for a property appraisal and inspection, similar to a traditional home purchase, to satisfy the lender’s requirements and ensure the property’s value and condition.
• Credit report fee: A fee for pulling your credit report is often required as part of the qualification process. This may be as little as $35.
• Title and escrow fees: Title search, insurance, and escrow fees are part of the closing costs. These cover the administrative tasks related to transferring the property and loan. As a percentage of the sale price, title fees can average around 0.5%-1%, and settlement fees can be around 1%.
• Difference in loan balance and purchase price: If the home’s sale price is higher than the assumable mortgage balance, you’ll need to cover the difference, either through savings or additional financing.
• Legal or consulting fees: You might incur legal or financial consulting fees if you seek professional advice or services during the process.

While assuming a mortgage can save on some costs compared to a new mortgage, it’s important to account for these expenses to fully understand the financial implications of the transaction.

Is an assumable mortgage right for me?

Deciding whether an assumable mortgage is right for you depends on your financial situation, the current interest rate environment, and the specific terms of the available loan. These mortgages offer potential benefits like lower interest rates, reduced closing costs, and a quicker closing process. However, they also come with challenges, such as qualification requirements, limited availability, and potential upfront cash needs.

Carefully consider the pros and cons, and evaluate whether the savings and advantages align with your home-buying goals. Remember, not all mortgages are assumable, and each type has its own set of rules and processes.

If you’re considering an assumable mortgage, HomeLight can connect you with a top buyer’s agent in your market who is experienced with assumable loan listings. Partner with a proven expert to find the right home for you.

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