Twenty years ago assumable mortgages were common and let home buyers take over another homeowner’s house loan without having to financially qualify. “But that type of program went away,” says Carol Addy, vice president and national sales manager for FirstBank Mortgage Partners. They are still around today, but you do have to qualify for the mortgage you are trying to take over. 
An assumable mortgage is a mortgage where you take over another person’s home loan rather than obtaining a new mortgage to purchase a home. With an assumable loan, the person who services the loan will need to obtain a full credit report and look at their debt-to-income ratio. Lenders want to make sure that the potential buyer can make the monthly payments.
FHA, VA and USDA all can be assumable loans but not conventional loans such as 30-year loans. Some non-conforming loans such as adjustable rate mortgages from Fannie Mae and Freddie Mac can be assumable.
“Interest rates are rising. You won’t be able to get a government loan these days for 3.5 percent interest. So, you can assume someone else’s loan that is that rate. That can save you a lot of money through the years,” Addy remarks.
A seller and buyer need to reach an agreement and then contact the loan servicer who will handle the rest. Closing costs will be less than closing costs for a traditional loan. If you want to find a seller that will do this, you will not be able to go through a realtor because it is not a traditional sale.
“But it takes a very savvy homeowner to know how to market it and understand all the aspects of an assumable loan. If you can find one, it might be a good thing to look into. But the hard part will be finding one,” says Addy.
