When you assume a mortgage, you take over another person’s mortgage. The advantage here is that is may save you a fair amount of money – it is usually less expensive than doing a mortgage from scratch.
Finding out how to go about this, though, is not that easy. Information on this kind of financing is not very extensive. That is why this article has been written – to help you if you decide to go about assuming a mortgage.
As with any other home purchase, you need to find the right house for you. Nine times out of ten, the person who has a bond that can be taken over in this manner will use this as a selling point so look for this to be advertised on the web, etc. If this is the only option you are considering, be prepared to put in the effort – they may not be that easy to find. In addition, it is only loans that are adjustable-rate and FHA that can be transferred in this manner.
You are entitled to full disclosure as to what you are getting into. Ask for a copy of the original contract from the seller. You need to ensure that you are not taking on a headache here.
Once satisfied, contact the lender in question and ask them how to go about assuming the loan. They will usually forward a package with all relevant documentation and requirements. Check out this simple mortgage calculator to learn more.
Have a look at what they are going to want from you. Normally speaking, this is some form of deposit; proof of income (in the form of salary advices or tax returns); a reasonable credit rating and an admin fee for the process – this could be a few hundred dollars.)
In addition you will need to make provisions if the loan amount falls short of covering the full price requested by the seller. You will either need to come up with the difference or have the shortfall financed. It depends on what makes sense at the time to you.
Do enter into this type of arrangement carefully – find out what the shortfall would be upfront – financing may be necessary anyway and it may not pay you to assume the loan under these terms. Also be sure that the terms are favorable – they are not always. If you get this right though, you could stand to save a packet of money.