Mortgage Dictionary -> Assumable Mortgage
With the tough economic time many Americans are now experiencing, it's gotten a lot harder to get a mortgage particularly for those with less than ideal credit. It's even tougher for sellers to sell their homes, because buyers are often unable to secure financing. One solution to both these problems is that of the assumable mortgage, and you'll be learning a lot about it here.
What is an Assumable Mortgage?
When many people buy a home, they apply for a mortgage loan from the lender and it becomes their responsibility for the duration of the mortgage. However, when it comes to the assumable mortgage, this responsibility transfers from the seller to the buyer—in other words, the buyer takes over the existing mortgage. Things like interest rate and the principal of the loan are transferred over to the buyer.
What is an Assumption Clause?
But an assumable mortgage is not as simple as filing paperwork. Rather, assuming a mortgage requires the approval of the lender. They must be OK with the switch. The assumption clause is a part of this deal. The assumption clause is a specific provision in the original mortgage contract that allows the transfer of rights from one party to the other. Every assumption clause comes with specific conditions, as well as a fee.
What is an Assumption Fee?
Lenders want to be able to trust both the current borrower and the one who hopes to assume the debt. Therefore, they use an assumption fee as a means of backing things. The assumption fee may be big or it may be small, depending on how much life is left on the loan, the potential borrower's credit and the status of the market. But no assumption ever takes place without the fee, so be prepared to pony it up when you buy the home.