An assumable home loan is a type of mortgage loan that can be transferred from the original borrower to the subsequent owner. This type of loan is typically backed by the government, such as Federal Housing Administration (FHA) loans, U. S. Department of Veterans Affairs (VA) loans, and Department of Agriculture (USDA) loans.
Conventional loans, such as the ever-popular 30-year loans, are not assumable. However, there are some non-conforming conventional loans that are acceptable, such as Fannie Mae and Freddie Mac adjustable-rate mortgages (ARM). When you take out an assumable mortgage, the current borrower gives you the balance of their loan and you are responsible for the remaining payments. With a VA loan, the government guarantees that it will repay part of the balance if the borrower defaults.
Depending on the amount of the loan, some or all of the borrower's rights remain linked to the home with the mortgage taken out, even after the sale. In order to qualify for an assumable loan, you must meet certain criteria. This includes income statements, asset verification and creditworthiness to ensure that you can make the minimum monthly loan payments. It's important to talk to a qualified mortgage expert about the specific documents needed to qualify for an affordable loan.
If entered informally, sellers run the risk of having to pay the full remaining balance upfront. Sellers also risk buyers not making payments, which can negatively affect their rating. Therefore, it's important to make sure that you are able to make all payments on time and in full in order to avoid any potential issues. In an environment of rising rates, buyers can secure better terms by taking out loans that originated in periods of low interest rates.
This means that your monthly payments are the same amount as the original borrower, and if you pay the loan in full, you will finish paying off your house on the same date you would have paid if you had taken out a new loan. Overall, assumable home loans can be a great way to secure a better rate on your mortgage loan and save money in the long run. However, it's important to make sure that you understand all of the terms and conditions before entering into an agreement.
