When the Seller Says, “Please, Take My Mortgage!”

Courtesy of Realtor® Magazine

Higher rates, coupled with the significant rise in home values over the last few years, have forced many buyers out of the home buying market entirely.

A mortgage assumption takes place when the buyer takes over the seller’s existing mortgage at closing in lieu of getting a new loan. Currently, the only loans in the market with a standard qualifying assumption clause are VA, FHA and USDA loans. Assuming a $300,000 loan at a 2.5% interest rate versus getting a new loan at a 6% interest rate represents $614 per month in savings.

VA, FHA and USDA mortgages all carry a qualifying assumable clause, which means any owner-occupant buyer can qualify using the same standard the loan was issued under with the existing mortgage servicer.

VA loans can be assumed by both veterans and non-veterans. Veteran-to-veteran assumptions, allow the buyer to substitute their VA entitlement onto the loan and release the seller’s entitlement, for use on a future VA loan. Veterans who allow an assumption by a non-veteran leave their entitlement behind until the loan is paid off, while others will only sell veteran-to-veteran. The FHA & USDA have no such entitlement issues. In all cases, sellers should have qualified legal counsel to ensure they aren’t liable if buyers default on the mortgage.

This is a great option to think about when purchasing a home. Make sure you speak to a lender or Mortgage Advisor prior, for a better understanding of the process.