When buying a house, the typical process involves choosing a lender and applying for a new mortgage. But imagine if you could take over someone else’s mortgage with a low interest rate.
That’s what we call “assuming” the mortgage. If the house you want to buy has an assumable mortgage, you can take over the existing loan. This might come with better terms than what you’d get with a new loan in the current market.
Let’s explore this option, how it works, and if it’s the right choice for you.
What is an assumable mortgage?
How Does An Assumable Loan Work?
What Types of Loans Are Assumable?
Not all mortgages are assumable. In fact, the majority of conventional mortgages are not assumable. But, if you’re dealing with a loan insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA), it can be taken over as long as specific requirements are satisfied.
Buyers who want to assume a mortgage from a seller have to meet certain requirements and get approval from the agency that oversees the mortgage.
Backed by the Department of Veterans Affairs, VA loans are accessible to eligible military members, service members, and their spouses. However, buyers don’t have to be in the military to qualify for an assumable VA loan. Even if a buyer isn’t a qualified current or former military service member, they can still apply for a VA loan assumption.
In rare cases, buyers can freely assume any VA loan closed on or before March 1, 1988. In other words, the buyer does not need the approval of the VA or the lender to assume the mortgage.
USDA loans are available for buyers interested in rural properties. These loans come with the advantage of not requiring a down payment and typically offer low interest rates.
To take over a USDA loan, the buyer must meet the usual qualifications, which include meeting credit and income criteria, and gain approval from the USDA to transfer the title. The buyer can either assume the existing interest rate and loan terms or choose new ones.
However, it’s important to note that even if the buyer meets all requirements and receives approval, they cannot assume the mortgage if the seller is behind on payments.