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What is an Assumable Mortgage?

An assumable mortgage is one which allows for the terms and balance of the existing mortgage to be transferred to a qualified buyer of the financed home. Qualification of a buyer uses the current guidelines of the guaranteeing/insuring agency, such as the Federal Housing Administration or the Department of Veteran Affairs. For example, a buyer looking to purchase a home that is financed with an FHA assumable mortgage would qualify under the current guidelines for applying for a new FHA mortgage. Once qualified, the buyer would be able to purchase the home along with taking over the assumable mortgage, potentially saving every month on mortgage payments, as well as paying lower closing costs.

-- Watch our short video on mortgage assumption below --

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What should I know about Mortgage Assumption?

Mortgage Assumption is a powerful, value-creating opportunity that allows home sellers to transfer a lower interest rate mortgage to a qualified buyer. With interest rates rising above recent historical lows and a large amount of assumable mortgages having been originated over the past few years, both home buyers and home sellers can greatly profit from understanding how this process works. At Zumption we strive to remain the industry leader in connecting buyers and sellers of home with assumable mortgages. Let us help you find an assumable mortgage on your next home, or get the visibility needed when listing your assumable home for sale.



How to Assume a Mortgage

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The Home Search

  • 1)
    Find A Home With An Assumable Mortgage.
    By searching Zumption.com you can find homes with assumable mortgages for sale in your desired area, as well as estimated mortgage details for the home, allowing you to find assumable mortgages that meet your specific search criteria. If you are working with a Realtor, ask to view the homes you are interested in. Still looking for a Realtor? Contact Us, and we can connect you with a Realtor in your area who can help in your search to find assumable mortgages.
  • 2)
    Negotiate A Sale Price.
    Once you’ve found the home you want to buy, ask the seller for their mortgage payoff information, which can be obtained from their mortgage servicer. The payoff information will include the unpaid principal balance (UPB), the interest rate and the monthly payment amount of the mortgage, valid until a specified date. Make an offer to the home owner, contingent upon assuming the loan. Based on the mortgage information negotiate on a sale price for the home. Remember during negotiations that the down payment for the home would be the difference between the agreed upon sale price and the UPB.
  • Find assumable mortgages throughout the United States with Zumption.com. Our national assumable mortgage database and expertise in the mortgage assumption process can help you find your next home and save!

The Closing Process

  • 3)
    Request The Assumption Package.
    Once you’ve agreed on a price, the next step is to request an Assumption Package from the mortgage servicer. The seller will authorize you, or your Mortgage Assumption Facilitator, to request the Assumption Package. This package will usually contain the details of the mortgage and the necessary credit check forms to qualify for the assumption. Double check the mortgage details in the assumption package to ensure that the payment and mortgage rate are in line with the information you previously received.
  • 4)
    Choosing A Closing Date.
    After completing the Assumption Package and returning it to the mortgage servicer, the closing date can be set. The mortgage servicer has a maximum of 45 days for an FHA assumable mortgage (30 days for a VA assumable mortgage) to approve or deny the assumption based on the buyer’s creditworthiness. Unlike a typical closing, an appraisal is not usually required when assuming a mortgage, though the buyer may wish to have the home appraised anyway.
  • 5)
    Closing On The Home.
    Closing occurs just as it would with other real estate transactions. Both buyer and seller (with their attorneys when necessary) sign documents, exchange the down payment, and transfer the deed of the property. Included in the closing process is the agreement by the buyer to assume the liability of the mortgage from the seller.
  • 6)
    Release of Liability.
    Now that the home purchase has been completed, the seller must file the requisite Release of Liability form with the mortgage servicer, allowing the liability of the assumable loan to be transferred to the buyer.

These steps are meant to help home buyers learn how to assume a mortgage, give a basic understanding of the assumable mortgage process, and how buyers should proceed when interested in purchasing homes financed with FHA assumable mortgages or VA assumable mortgages.




History and Facts on Assumable Mortgages

Prior to the 1930’s: Home financing in the U.S. primarily conducted through 5-year balloon mortgage financing.

1930’s: Housing suffers severely during the Depression of the late 1920’s and 1930’s as credit availability wanes. Congress enacts Federal Home Loan Bank Act of 1932, Homeowners Loan act of 1933, and creates Fannie Mae (1938) seeking to bring stable long-term home financing to the real estate finance system.

1934: Congress passes National Housing Act, Creating Federal Housing Administration (FHA) in order to provide credit to home buyers during depression.

1940’s: 30 year mortgages become foundation for American home financing. Due-on-sale clause incorporated into mortgage contracts, requiring that the mortgage be repaid in full upon a sale or conveyance of interest in the property that secures the mortgage.

1944: VA Home loan guaranty program created to assist armed forces members returning from World War II.

1970’s-1980’s: Rising inflation and volatile interest rates during the late 1970s and early 1980s drives mortgage rates well above historical rates of the previous several decades with mortgages eventually topping out in 1981 at 18 3/8%.

1980’s: Assumption of FHA and VA mortgages become popular as rising interest rates drive mortgage rates as high as 18 3/8%. Popularity of mortgage assumption continues to grow despite HUD requirement that original mortgagor remain liable even if home buyer (assumptor) defaults on payments.

1980’s: Mortgagors and home buyers begin to contest validity of and bank’s enforcement of due-on-sale clauses as differentials in market interest rates and rates on existing mortgages create significant assumption opportunities.

1982: Garn-St.Germain act passed by Congress. Section 341a of the Act makes the enforceability of due-on-sale provisions a federal issue, and provides that if real estate loan documents contain a due-on-sale provision, the provision is enforceable if the property securing the loan is transferred without the lender's consent. Also provides that lenders are not required to include due-on-sale provisions in loans.

1982: Subsequent to Garn-St. Germain, Federal Housing Administration (FHA) and Veterans Administration (VA) continue to specifically allow for all newly issued loans to remain assumable.

1984: U.S. Supreme Court holds in Fidelity Federal Savings and Loan vs. De La Cuesta, that the Home Owners' Loan Act of 1933 (HOLA) empowers the Federal Home Loan Bank Board’s due-on-sale regulation to preempt conflicting state limitations on the due-on-sale practices of federal savings and loan associations.

1989: Dept. of Housing and Urban Development along with FHA and VA relax mortgage assumption requirements, releasing seller of property from default liability of new buyer, provided that new buyer (assumptor) qualifies under existing HUD guidelines.

2007-2013: Financial crisis forces Federal Reserve to cut short term interest rates to 0% and Quantitative Easing (QE) programs drive longer term interest rates in the U.S. to historical lows, Including mortgage rates hitting a historic low of 3 1/8% in April of 2013.

Fall 2013: Federal Reserve announces plans to begin “tapering” of Quantitative Easing programs and reduce monthly purchases of mortgage backed securities (MBS) in the open market. Mortgage rates move above 4%.





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