Basics of an Assumable Loan

Assumable Loans

During a period of high interest rates, assumable loans may be the ticket you need to find a great deal. Assumable loans are existing mortgage loans that allow a new borrower to take over the existing mortgage terms and conditions from the original borrower. This means there is hope for landing an interest rate lower than any new loan the market will hand out today. Not all loans are assumable. FHA and VA loans are assumable dependent on the buyer (who will be taking over) qualifying with the lender who originally gave out the loan.

Where does one find an assumable loan?

Let your Realtor know that you are interested in an assumable loan and he/she will send you available listings. Once the correct property is found, the buyer will have to submit an application to the lender. This will require documentation such as proof of income, credit history, and other financial information. Once approved, then the transaction can move forward accordingly.

Benefits of an assumable loan?

Lower interest rate and further along in the amortization schedule which allows for a better principal vs interest payment ratio.

Oftentimes an appraisal is not required which saves the new buyer $700-$1000 in upfront fees.

Downsides of an assumable loan?

Requires the new borrower to make up the difference between the loan amount left and the new purchase price of the house. Often times this can be tens if not hundreds of thousands of dollars. Banks typically do not like to allow for second mortgages to come up with that cash.