3 Questions to Ask When Doing Assumable Mortgage
The age-old saying is that, every coin has two sides. It is more so in the case of assumable mortgage. A large number of homeowners exult over the statement that there are mortgages that are assumable. If a mortgage is assumable, it means that you can sell the property and have the assumptor approved by the lender take over the mortgage payments. By doing this, you can have a sizable cash payment and get rid of the mortgage.
But that is what happens in ideal situations. And you know how reality beats ideal. In the case of assumable mortgage, many homeowners are ravished with joy but more are disappointed and frustrated. A few of homeowners are filled with remorse months after assuming their mortgages. Some would bite their tongues off even one year after the assumption has taken place.
In a word, there are many scenarios going on in the process of mortgage assumption. To avoid unpleasant scenes, you need to ask 3 questions. And to ensure a successful mortgage assumption, you need to ask the 3 questions, too.
What are they, then?
Is it an assumable mortgage that you have?
That is the first question to ask. Not all mortgages are assumable. Typically, only FHA mortgages come with the mortgage notes stating that they are assumable. If you have an FHA mortgage, in most cases, assuming it would be easy and streamlined.
HUD has set regulations on the assumption of FHA mortgages. There is the timeline, the processes that apply to FHA mortgages originated or closed on a specific date, and the assumability of mortgages for investment purpose.
You’d better check it out by either going to the HUD website or giving HUD a call.
The type of mortgages that calls for much discretion is those that cannot be assumed. The notes often come with the “due-on-sale” clause. This clause stipulates that the full balance must be paid upon sale or transfer of ownership of the property.
Don’t belittle this clause. It could be an impediment if you want to sell your house and have a buyer take over the mortgage responsibility through assumption. This arrangement may drive your mortgage lender to call the loan due. If you assume your mortgage with a due-on-sale clause before it is paid off, you may face foreclosure.
That explains why quite a number of homeowners with this clause do the assumption without the knowledge of their lenders for fear of foreclosure.
Be noted, assuming due-on-sale mortgages under the table is risky. You are keeping the lender in the dark. It is strongly suggested that you talk to your lender first.
Some lenders may consent to an assumption even if the mortgage is not legally assumable. Don’t run the risk of dealing behind your lender’s back. Talk to him first.
Is the interest rate on your mortgage competitive?
That is another big question to ask. How can you assume your mortgage without a buyer? If you are selling your house, you’d better make sure it is attractive to buyers. What do buyers look for in a sale? Nothing but the property itself and the rate on the mortgage. If your house is gorgeously presentable, then there is a good chance that buyers will come in great numbers. If your house is not that impressive, you have to work on the mortgage rate.
Start shopping around like a home buyer. Get the info on the rate in your area and in the vicinity. What is the rate on the mortgage market now? Is your mortgage rate on the low side or high side?
Let’s say, 3 or 5 years ago, you bought this house at interest of 8 percent. Now the rate stays at 7 percent and shows sign of increasing. If that is the case, it is easy for you to sell it. Firstly, assumable mortgages, when compared with new mortgages, are simplified, which means that buyers would save a lot of time on securing an assumable mortgage. Secondly, who can resist a lower mortgage rate? That would save a lot of money! Lastly, who can say no to a deal that saves both money and time?
Now, you get the point.
So what if your rate is not that appealing? Well, you may want to wait for a while before the rate on the current market changes. And there is one more thing you may want to try. That is to add value to your house. Make it comfortable and cozy. Some buyers care more about the impression the house makes than the rate it has.
Is the buyer willing to take over the mortgage?
I have said this more than once. A successful assumable mortgage is one where the seller finds a buyer who is willing to take over the mortgage and perform the financial responsibility.
Just because the buyer says he is to make the due mortgage payments does not mean his acts later will be as good as his words. You have no way to predict the future. But in case that the buyer does default, the liability clause stipulates that you are to pay what’s due. That’s money. And if it is a non-assumable mortgage, then things will get trickier. You are assuming the mortgage against your lender’s will and against the mortgage note. Now you are behind the payments! Just think about it.
If it is an FHA mortgage, you don’t have to worry about default. The buyer would legally take over the payments. Even if he defaults, that would not inflict you. You have nothing to do with the mortgage when it is assumed.
Therefore, once again, I’d like to say that you’d better ask the buyer to put down a considerable amount of money upfront. Take it as your safety net which may save you in unpleasant occasions.
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