With the sharp rise in interest rates, the assumable loan is coming back on the real estate scene. An assumable mortgage allows a buyer to purchase a home by taking over, or assuming, the seller’s mortgage loan. The main reason a buyer would take advantage of this option is to assume a loan with a lower interest rate than what is currently available.
When this option is available, a seller’s real estate agent will advertise that the seller has an assumable mortgage. Purchasing the seller’s home this way is subject to lender approval of the buyer. A newly drafted assumption addendum in Maryland outlines the terms and conditions under which a buyer assumes responsibility for an existing mortgage on the purchased property. The lender holding the existing mortgage will require the buyer to submit a full application for pre-approval, just as if they were applying for a regular mortgage of their own.
The buyer normally agrees to pay any assumption and transfer fees charged by the lender. If the lender requires any interest rate increases as a result of the buyer’s pre-qualification process, the buyer can elect to terminate the contract or pursue alternate financing. The seller agrees to provide the buyer with copies of any notes and deeds of trust to be assumed.
Most conventional loans are not assumable, however, Federal Housing Administration loans, Department of Veteran Affairs, and US Department of Agriculture loans are assumable as long as specific requirements are met. For Federal Housing Administration loans, newer loans require that both buyer and seller meet specific criteria for an assumable mortgage. For example, the sellers must live in the home as a primary residence for a set amount of time. For VA loans, the original loan is only available to eligible military members, service members and their spouses, but a buyer who is not a qualified current or former military service member can apply for a VA loan assumption. It is also likely that a VA loan assumption needs to be approved by the Regional VA Loan Center, which can add some time to the homebuying process.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
