How to Settle an Assumable Mortgage
There may be a time when you want to move out of mortgaged house once and for all. You may get tired of living in the same place for over 5 years. You may find the mortgage payments have been giving you more pressure than you can handle. You may have an extended family and need to move to a house bigger. Or, it could be that your new job requires you to settle down in a different city.
Whatever the case, the conclusion is that you need to get rid of your current mortgage by assuming it. But first, there is one important thing to do: check your mortgage note. After looking into it, you will know whether the mortgage is assumable.
If it is assumable, then congrats. It means you are one of the lucky few. You can get rid of the mortgage legally. What you may not know is that thousands of homeowners get stuck in their houses because their mortgages are not assumable.
Now, what are the next steps?
Talk to your mortgage lender
Many homeowners still try to assume their mortgages even when the notes state that these are not assumable mortgages. In that case, they have to do all the work under the rose without the knowledge of their lenders. This is especially so if they’ve been behind the mortgage payments. They are afraid that once the lenders know the deal, they are facing foreclosure and may lose the house.
But you don’t have to go through all these now that your mortgage is assumable. You can talk to your lender and let him know you are planning on assuming the mortgage. Ask him to provide you with the information:
- The front and back-end debt ratios
For your reference, the front-end debt ratio is a variation of the debt-to-income ratio (DTI) that calculates how much your gross income goes towards paying debts. Lenders often require borrowers to have a front-end DTI ratio that is less than a certain indicated level.
You need this info because you are to find and sift potential buyers in the next step. You need to get a buyer who meets your lender’s requirement on the front-end ratio.
On the other hand, the back-end ratio refers to the percentage of income that goes toward paying recurring debt payments that include credit card debts, alimony payments and legal judgment payments. The lower the ratio the potential buyer has, the greater possibility that he would get approved by your lender.
- Credit rating to qualify for your mortgage
By assuming your mortgage, you are making the buyer go through the similar process of applying for a new mortgage from your lender. And understandably, you need to know how your lender arranges the credit rating.
Find an eligible buyer
Your mortgage will be easy to assume if the rate is relatively lower than the rate on the mortgage market. It is exactly the competitive rate that encourages potential buyers to prefer assumable mortgage over new mortgage.
It also explains that it is a good time to assume your mortgage if the rate on the market in general is on the high side and is showing no sign of decrease in the near future.
There are several ways to find a buyer. First you can post on the internet. We do many things online. It is very likely that your post will catch attention if it is put on a forum with high popularity.
Another is to spread the news among your friends. They may know people who are in the market of looking for an assumable mortgage. And because the buyer is introduced by your friends, there is less risk of fraud. Or, you may find that one of your friends is looking for a mortgage that can be assumed. That would be great news!
The third method worth trying is finding an agent. There are all kinds of agents excel in managing different tasks. Find one who is specialized in assumable mortgage. He has the resource you can never compete unless you are an assumable mortgage agent yourself.
Of course, it takes money to hire an agent to do your job. But if it is as effective and satisfactory as you expect, then the money is well spent. You can save a lot of time and focus on what’s important to you at the moment.
Arrange the meeting
Now it is time for you, the lender, and the buyer to talk. But before the meeting happens, tell your buyer to get everything in place. He may need to pull his credit report with scores from the three national credit bureaus. Necessary documents may include his pay stubs of the past two months, tax returns of the past two years, copies of driver’s license and Social Security number.
And you see, you and the buyer need close cooperation.
When the three of you finally meet at the lender’s office, things come to the final stage. The lender will check the credit report and documents of the buyer to see if he qualifies for the mortgage you are assuming. If the lender approves, the buyer will get a mortgage assumption package.
The buyer then reviews the assumption package and completes the application. He then mails the application and supporting documents to the lender.
If everything goes well, the buyer gets approved for the application. Then congrats again, you are able to walk away from the mortgage now. Discuss the details of the mortgage responsibility with the buyer and make sure you are completely cut off from the mortgage.
Each lender has his set of requirements towards how a mortgage is assumed. You’d better talk to your lender and find as much info as you can. Make sure you are on the safe side when doing this deal.
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