What is An Assumable Mortgage, and Is It Right For You?

When buying or selling a home, there are many considerations to keep in mind. If you are a home seller and have an outstanding mortgage, you can clear it fast by getting payments from the buyer. Alternatively, you can sell the house as is and transfer the assumable mortgage to the buyer. This is the best option, especially if the buyer needs financing to buy your house. It can also work when you need fast cash and to close the deal quickly due to financial constraints, job transfer, or any other valid reason.

So an assumable mortgage can help you sell my house fast Tampa without the need to clear the loan fast. The buyer will also buy it at a lower mortgage interest rate than the current market rates. So, assumable mortgage benefits both the seller (owner of the house) and the buyer. Keep reading to find out if the assumable mortgage is right for you.

What is An Assumable Mortgage?

An assumable mortgage is a type of financing arrangement whereby an outstanding mortgage and its terms are transferred from the current owner to a buyer. By assuming the previous owner’s remaining debt, the buyer can avoid obtaining their own mortgage. Different loans can qualify as assumable mortgages, though there are some special considerations to keep in mind.(1)

First, the homebuyer must consider the current interest rates and terms of the mortgage. In most cases, the current interests will be much higher than the assumable mortgage rates, hence a good option. Also, the owner must consider the actual cash price for the home without the outstanding mortgage and do the math to come up with a cost-effective solution that allows them to get the best price for the house.

Type of Assumable Mortgages/Loans

Please note that not all mortgages are assumable. Here are the most popular mortgages that are assumable:

Federal Housing Authority (FHA) Loans – If the owner has an FHA loan, the buyer can assume the loan, but both parties must meet certain requirements. For example, the owner must have used the property as a primary residence. On the other hand, the buyer must verify if the loan is assumable and be creditworthy.

Veterans Affairs (VA) Loans– This is a unique mortgage available to military members and their spouses. To assume a Veterans Affairs mortgage loan, the buyer must be a military member to qualify. But the sellers can be military members or spouses of military members. But before mortgage assumption, the buyer needs approval from the lender or VA. 

The U.S. Department of Agriculture (USDA) Loans – These loans are available to persons buying rural homes or properties, and interest rates are very low. To qualify for mortgage assumption, the buyer must be credit worth and receive approval from the USDA. The buyer assumes the existing interest rates and terms of the loan. But new rates and terms can be negotiated, especially if the seller is delinquent on payments. 

Benefits of Assumable Mortgage

Both the seller and the buyer might benefit from an assumable mortgage in different ways. Here are the benefits:

To the Seller

A seller can get an assumable mortgage as an incentive to prospective buyers if the environment experiences rising interest rates. So when they need to sell my house Tampa, buyers will see them as a better option due to low-interest rates, and they will save a lot. In addition, having an assumable mortgage allows the owner to sell the house fast without the need to clear the loan. As you know, some situations, like a job transfer or financial strain, may force one to sell their house fast to we buy houses Tampa companies or buyers who need mortgage/financing. With an assumable mortgage, the transaction will be simpler and fast.

To the Buyer

The main benefit of an assumable mortgage to the buyer is the lower interest rates that allow the buyer to save good money. For instance, if the current interest rate is 12 percent, the assumable mortgage interest can be 6-8% depending on the credit score of the owner and other loan terms. In addition, when a buyer assumes a mortgage, the lender will not need a new appraisal, helping the buyer save more on closing costs.

Most importantly, the buyer may not have to secure a new line of credit to acquire the property. They just need to assume the mortgage and its terms. This saves the time and money they could have spent to secure a loan from another lender. Also, if the home equity is low, the buyer doesn’t have to pay a large amount of money out of pocket for a down payment.

Are There Downsides of Assumable Mortgage? 

Yes, an assumable mortgage has a few downsides for the buyer and the seller. If the interest rate is close to the current rates, some buyers may opt to secure loans from elsewhere to acquire the property, and that delays the closure. If the equity is high, the buyer needs a substantial down payment, and they may be forced to get another loan to close the deal. If that happens, the buyer may struggle to pay the two mortgages simultaneously, and the risk of default increases.

Is An Assumable Mortgage Right For You?

If the current mortgage interest rates are too high than the assumable mortgage rates, assuming a mortgage is a favorable option for the buyer. They will save huge money as a result. But if the home equity is high, the buyer will need massive cash to pay the down payment. They may be forced to secure a second mortgage if they don’t have the cash. 

On the other hand, if the current interest rates are low or close to the assumable mortgage interest and you have saved enough money to pay for a down payment, financing a property purchase with a new loan or mortgage may be a better option. So you need to sit down and read the assumable mortgage terms and then do your calculations to know whether the assumable mortgage is a better fit.