Everything has its benefits and drawbacks, and that includes mortgage loans. There are plenty of options available, and you need to find the best one to meet your needs. You have probably heard about conventional mortgages, FHA loans, and even VA loans. On the other hand, have you heard about assumable mortgages? What do you need to know about this option, and how do you know if it is right for you?
An Overview Of An Assumable Mortgage
So, what is an assumable mortgage loan? This means that the buyer is responsible for taking over the mortgage obligations of the seller. One of the biggest advantages of this is that the buyer can use the seller’s interest rate and terms. For example, if you have noticed that interest rates have gone up significantly between now and when the seller took out his or her mortgage, you might decide to take on the seller’s interest rate instead of getting your own interest rate.
How An Assumable Home Loan Works
Now, it is time to take a closer look at how this works. Even though you might want the interest rate that the seller has, you still need to compensate the seller for the equity that he or she has built up. For example, the loan may only have a balance of $200,000, but the seller has already put in $100,000 of equity. As a result, you will either have to take out a second mortgage to cover the $100,000, or you will have to pay the seller $100,000 in cash. Even though you might have to take out a second mortgage for the remainder of the balance, the rest of the mortgage will still have the original interest rate, which could be lower.
Are All Loans Assumable?
Not all loans are assumable; however, there are some examples of loans that are. For example, FHA loans, VA loans, and USDA loans are assumable. If you want to assume a USDA loan, you have to meet the qualifications to take out a USDA loan. VA loans are only available to veterans, but non-veterans are allowed to assume VA loans, which could help them save a significant amount of money.