Loan Assumption

Description

Loan Assumption refers to the process where a new borrower takes over an existing loan from the current borrower. Here’s how it works:

1. Assumable Mortgage Basics:
   • An assumable mortgage allows a new borrower (often a home buyer) to step into the shoes of the current borrower and continue with the same mortgage terms.
   • The new borrower assumes the existing loan, including its interest rate, repayment period, and remaining balance.
   • Essentially, it’s like swapping one borrower’s name on the mortgage agreement for another.
2. How Assumable Mortgages Work:
   • Eligibility: Not all types of mortgage loans are assumable. Conventional loans cannot be assumed, but FHA and VA loans can.
   • Application Process: The new borrower must apply with the lender and qualify for the loan.
   • Down Payment: When assuming a mortgage, a down payment is generally required. It may be larger than expected.
   • Remaining Loan Balance: Remember that when you assume a mortgage, you’re taking over the homeowner’s remaining loan balance. This amount won’t cover the full purchase price of the home, so you’ll still need a down payment to make up the difference.
3. Benefits of Using an Assumable Mortgage:
   • Interest Rate Advantage: If interest rates have risen since the original loan was made, assuming an existing mortgage could allow you to lock in a rate far below the current market rate.
   • Example: For instance, if the lowest weekly mortgage rate occurred at 2.65% for a 30-year fixed-rate mortgage, assuming that rate could be advantageous even if rates have increased since then