Posted on: 17th Sep, 2007 07:43 pm
I live in san diego ca. and am interested in buying a 2nd home (since it is easier to rent my current home than to sellit) because of the stricter loan qualifications right now my real estate agent said it would be best if i assume someone's loan and work on the paper work (loan docs. ) later. what are the draw backs to doing this and what are the positive points?
Hi Chachabebe,
Welcome to the forum.
The main advantage of assuming a mortgage is its qualification process. The process of qualifying for an assumable mortgage is not as tough as to qualify for a new mortgage. Moreover, you don't have to incur the costs of applying for a loan and other fees associated with the home sale. And if the seller's interest rate on the loan is lower than the current rates in the market, you'll be able to save on interest expenses.
But assuming a mortgage has also some disadvantages of its own. If the existing mortgage is signed at a higher rate than today's market, then you may have to pay off the loan at the higher rates. You will not be able to save your money. Moreover, the rising property values may also create problem. If value of the property has increased over the years, then you would have to come up with cash to cover the difference between that outstanding loan amount and the new value of the property.
Welcome to the forum.
The main advantage of assuming a mortgage is its qualification process. The process of qualifying for an assumable mortgage is not as tough as to qualify for a new mortgage. Moreover, you don't have to incur the costs of applying for a loan and other fees associated with the home sale. And if the seller's interest rate on the loan is lower than the current rates in the market, you'll be able to save on interest expenses.
But assuming a mortgage has also some disadvantages of its own. If the existing mortgage is signed at a higher rate than today's market, then you may have to pay off the loan at the higher rates. You will not be able to save your money. Moreover, the rising property values may also create problem. If value of the property has increased over the years, then you would have to come up with cash to cover the difference between that outstanding loan amount and the new value of the property.
larry has done a great job of outlining the pros and cons for assumability---when done right, the cost of the assumption falls squarely on the existing lender's lap...
assumptions make sense when:
- the interest rate of the existing loan is lower then the prevailing rates.
- you want to avoid the closing costs associated with a new loan.
- a second mortgage isn't required (unless you are paying cash for the difference).
- they are made with the lender's knowledge (as opposed to an wraparound approach).
- they are made on loans that don't have a dos (due on sale) provision.
regards,
scott miller
assumptions make sense when:
- the interest rate of the existing loan is lower then the prevailing rates.
- you want to avoid the closing costs associated with a new loan.
- a second mortgage isn't required (unless you are paying cash for the difference).
- they are made with the lender's knowledge (as opposed to an wraparound approach).
- they are made on loans that don't have a dos (due on sale) provision.
regards,
scott miller
Thank you Scott.
The only problem is finding an assumable loan out there. Hardly anyone does this anymore. Dont talk to real estate agent talk to a mortgage professional who can tell you whether or not you qualify for a loan for a second home.
One of the best times to assume a mortgage is when it is in the late stages of being paid off. It is very hard to find these but if you do you can save a lot of money.
Even if an assumed loan has a higher interest rate it is the total payments that matter.
Even if an assumed loan has a higher interest rate it is the total payments that matter.
"One of the best times to assume a mortgage is when it is in the late stages of being paid off."
That's well-said Eric and accepted too. if a mortgage is assumed at it's later stage of payment, then the new buyer need not pay much. But why do you say it's hard to get? is it hard to get in the current mortgage market status or usually it's a difficult deal?
That's well-said Eric and accepted too. if a mortgage is assumed at it's later stage of payment, then the new buyer need not pay much. But why do you say it's hard to get? is it hard to get in the current mortgage market status or usually it's a difficult deal?
No there just hard to find. Meaning it is hard to find a seller in the position to offer this. And most lenders don't care as much to hold a loan in the late stages as we all know this is when the least interest is coming in and most is going to principle. The lender could use their money better somewhere else.
I thought about it more and I think there probably are more opportunities for this. Maybe more real estate agents should offer this on the first contract. And if they say know go the conventional way.