Cash Payment Plus Assumption of Existing Mortgage

It is vital to remember that mortgage assumption does not take into consideration the buyer’s existing equity in the property. However, it does allow the buyer to take over the original loan balance at the original conditions. If the value of the home has increased since the initial loan was issued, the buyer will either need to come up with additional cash or apply for a new loan in order to cover the difference. This difference is also referred to as “equity.” For buyers who are taking over an existing mortgage but do not want to or are unable to put cash down to cover the equity, a typical second mortgage alternative is a mortgage debt credit, which can be used to cover the equity. Although the interest rate on this second loan will most likely be higher than the interest rate on the mortgage that is being assumed, the principle amount of this second loan will be considerably lower than is required for a “first” mortgage.

The buyer is required to comply with the lender before the loan can be assumed by the buyer. If the price of the house is higher than the amount still owed on the mortgage, the purchaser is expected to purchase the property that is equal to the gap between the price of the house and the amount still owed on the mortgage. In the event that the disparity is large, the purchaser might be required to obtain a second mortgage.

It is not possible for just anyone to take over an existing mortgage. You will still need to submit an application with the lender and meet the requirements to be approved for the loan. When you take on a mortgage, in most cases, you will be required to make a down payment, and the amount of that payment can be higher than you anticipated.

If mortgage rates have gone up in the years after the mortgage was first originated, an assumable loan may make the property more valuable for potential buyers. Imagine the following scenario: someone obtains a probable loan with an interest rate of 4.75 percent, and then five years later, when interest rates are about 7 percent, the person selling the house decides to sell it. That 4.75 percent rate, which cannot be obtained in any other way, may entice prospective buyers to select that house rather than another. Another advantage is that a seller who offers an assumable mortgage has more negotiation power when it comes to price.