Let's start by answering the question, "What is an Assumable Mortgage"?
An assumable mortgage is one that can be assumed, or taken over by another person. Not just anyone can take over the existing mortgage, and not every mortgage is assumable. The next question is, "Why would someone want to assume a mortgage"?
Some benefits may be taking over a loan with lower interest rates than what are currently available. Getting into a loan with less time until payoff. Instead of a 30 year loan, maybe there is only 20 years left. The benefits to a seller could be that their home becomes more attractive to a buyer. Another benefit could be that with a lower interest rate more buyers making less income may qualify. In addition, instead of just walking away from a home and having a foreclosure this could be a good option where someone else sees the benefit of buying the home and taking that mortgage. Investors may see a property that they don't have to put much down to get and they could renovate and resell with less risk or use as a rental with less risk. There is a place for the assumable loan.
The first thing anyone needs to do is check with the mortgage servicer or loan holder and see if the loan is assumable. Customer service will likely be your starting point. They will need to speak with the person on the loan, nobody else will get any information about the specific loan and if it qualifies. Presuming that they said it was assumable (which many are not) then the next step is to lightly discuss the buyers credit worthiness. Does the buyer already have a preapproval with another lender? What are they preapproved for? For example, if their credit score is low or their debt to income ratio is too high, they may not qualify for the loan. If they have already been preapproved by another lender or that same lender who has the loan already for the same type of loan (Conventional or FHA) then the chances are they have a good likelihood of being approved and you can continue proceeding.
Now you would begin the negotiations on an offer. Good Real Estate Agents can make this a lot easier. They will prepare the offer that meets the local guidelines and makes sure nothing is missed. They can also guide you through the process of inspections, communicate with the lender if needed, and help get any title work issues lined up and resolved before closing. Once an offer is agreed upon by both sides, the seller will notify the lender that the specific buyer is allowed to speak with the lender about this loan and will be assuming the loan. Then the authorized buyer can speak with the lender and try to get approved to purchase the property on the assumable loan. Once everything is approved their will be assumption loan costs (Replacing the financing costs) and a closing will take place.
I hope that this was helpful. Let me know if you have any questions. I am happy to assist with your home sale or purchase as well, so feel free to reach out.
Korey Rowlson, Associate Broker