Assuming a loan means you will take over the seller’s mortgage and continue to make the monthly payments. Assumptions are not common as most banks will not allow them, however, they are available for FHA and VA loans.
How does an Assumption Work?
Assumptions work by first examining your credit history to verify that you are eligible for the loan. The buyer will need to offer some cash to the seller (similar to a down payment). If the purchase price is $200,000 and the seller currently has a mortgage for $130,000 left on the home, the buyer will need to offer $70,000 in cash or obtain a second loan for this amount.
Benefits of an Assumption
The largest benefit to an assumption is the interest rate. When you obtain a new loan, you are paying the current market rate for interest. With an assumption, you are able to inherit the original buyer’s interest rate. The term of the loan is another benefit you need to consider. An assumed loan allows the buyer to take over the property with the same amount of years left on the original mortgage. So if the seller has a 30-year loan with 17 years left, you get to assume those 17 years of payments versus the 30-year loan.
One final difference with an assumption is the closing costs. The closing costs will be much lower when you assume the loan as you do not need to pay the original fee on the loan. Assuming a mortgage is a great deal for the buyers if you do have the cash to pay the seller. If you need to put more money into the home than you can afford, you need to understand your financial situation and if you can tie up money into the home.
Security Title is here to help you understand how an assumption works. If you are assuming a loan, we can help you obtain a copy of the original loan papers so you can review the exact terms and conditions of the loan. Contact our Davis County title office for more information about an assumption, 801-825-1313.
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