You may have seen the video on social media, talking about how assumable mortgages could be a smart move in today’s real estate market. Since we're in the process of selling our Orlando house, I wanted to dig a little deeper into what an assumable mortgage actually means and how it works. Here's what I found out!
What is an Assumable Mortgage?
An assumable mortgage allows a buyer to take over the seller's existing mortgage with the same terms. For example, if we bought our house in 2020 with a 2.5% interest rate, and now our buyer could assume that same low rate, which is about half of the current interest rates.
How Does it Work?
Here’s a quick rundown of the process:
Assuming the Loan: When the buyer assumes your mortgage, they take on your existing loan, including the interest rate and terms. They’ll also need to pay the difference between the current balance of your mortgage and the selling price of the house. So, if your mortgage balance is $150,000 and you’re selling the house for $200,000, the buyer would need to come up with the $50,000 difference.
Approval Process: This isn’t an automatic transfer. The buyer has to get approval from the original mortgage company. The process involves them filling out an application packet, which includes their income statements, Social Security numbers for a credit check, and other financial details. They also have to pay a non-refundable application fee of $1800.
Decision Time: After submitting the application, the mortgage company has up to eight weeks to make a decision. There’s no guaranteed approval—if you can qualify for a new loan, you’re likely to qualify for an assumable mortgage, but there are no specific guarantees or tips for approval.
Key Points to Remember
- Not All Mortgages Are Assumable: Check if your mortgage is assumable, as this typically applies to FHA and VA loans, but not always to conventional loans.
- Extra Costs: The buyer will need to cover the difference between the mortgage balance and the sale price, and there are fees involved.
- Approval Uncertainty: There’s no sure-fire way to guarantee approval, and the $1800 application fee is non-refundable.
So, if you’re thinking about selling or buying a home, an assumable mortgage could be worth considering. It might be a great way to lock in a lower interest rate, but it does come with its own set of steps and costs.
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