Ass assumable mortgage is an assumption of a loan, usually requiring the assumption of a particular mortgage by the purchasing party. Mortgage assumption can be of many forms like the assumption of an account, the assumption of an estate, the assumption of stock certificates, assumption of bank property etc. In this context, it means that either the person assuming the loan is qualified as borrower under prevailing financial and legal guidelines, or his assets are sufficient to compensate for the amount he is liable to the lender under the provisions of the agreement of contract. It also means that he is financially capable to comply with the loan agreement.
Under normal circumstances, the lender must approve the assumption of such loans on the basis of certain tests which depend upon the nature of the loan. Usually these loans are not given the approval unless the test is passed by a majority of votes of shareholders in favor. These loans are normally termed as assumable when the underlying loan has market value and the purchase price of the underlying property has risen above the mortgage amount. These loans are normally unsecured in nature.
Government-backed loans are generally assumed and approved without any investigation about the borrower’s present and future capability to pay off the loan amount. This is because the assumption of these mortgage loans are carried on behalf of the federal government. The two types of government-backed loans are the VA loans and FHA loans. VA is actually a loan guarantee program under the Internal Revenue Code. FHA is an establishment of the Federal Housing Administration.
The factors which determine your creditworthiness are your present employment, present income, length of residence, credit history, amount of loan debt, and the value of your collateral. This is why most of the buyers apply for FHA loans assumable. Since FHA loans are guaranteed by the federal government, no questions are asked regarding a buyer’s creditworthiness.
Another reason why people apply for FHA loans assumable is to qualify for low interest rate mortgage loans. If you are a military member and if you have at least a bachelor degree, then you can qualify for VA loans assumable. The minimum credit score that is required to avail this opportunity is 700 points.
A number of buyers are unaware that they can avail mortgage loans assuming their home loan. As the buyer, you can avail mortgage refinancing assuming your existing home loan. To make this possible, you should contact your seller and convince him to agree to sell your home. In order to convince your seller, you should provide him with a detailed explanation of your financial problems. Your convincing effort will ensure that you get a lower interest rate and affordable monthly payments.
Another major problem of homebuyers is closing costs. Closing costs can eat up the majority of the monthly income of a new homeowner. It is advisable for a buyer to pay close attention to how much he is paying to his lender each month. Once you find out the exact amount that you are required to pay, you can negotiate the amount with your lender. In some cases, the seller might agree to reduce the closing costs for a few thousand dollars.
Since FHA assumable mortgages do not involve any closing costs, your monthly payment will be lower than what you would have paid if you have applied for conventional loans. Although the interest rates are slightly higher than those offered by other lenders, they are still considerably lower than those charged by the federal government. So if you plan to purchase a new home and you want to avoid the hassle of high closing costs, then you should apply for a FHA assumable loan. The only thing that you need to keep in mind is to repay your loan as soon as you get your first salary.