FAQ
Assumable refers to when one party takes over the obligation of another. In terms of an assumable mortgage, the buyer assumes the existing mortgage of the seller. When the mortgage is assumed, the seller is often no longer responsible for the debt.
Not assumable means that the buyer cannot assume the existing mortgage from the seller. Conventional mortgages are non-assumable. Some mortgages have non-assumable clauses, preventing buyers from assuming mortgages from the seller.
To assume a loan, you must qualify with the lender. If the price of the house exceeds the remaining mortgage, you must remit a down payment worth the difference between the sale price and the mortgage. If the difference is substantial, the buyer may need to secure a second mortgage.
Certain types of home loans are assumable. For example, USDA, VA, and FHA loans are assumable. Each agency has specific requirements that both parties must fulfill for the loan to be assumed by the buyer. The USDA requires that the house is in a USDA-approved area, the seller must not be delinquent on payments, and the buyer must meet certain income and credit limits. The buyer must confirm with the seller and the seller’s lender if the loan is assumable.
When current interest rates are higher than an existing mortgage’s rates, assuming a loan may be the favorable option. Also, there are not as many costs due at closing. On the other hand, if the seller has a considerable amount of equity in the home, the buyer will either have to pay a large down payment or secure a second mortgage for the balance not covered by the existing mortgage.