The process of purchasing a house includes applying for a new home loan with a financial institution. However, you can obtain a mortgage in certain circumstances without starting from square one.
This is made possible through an assumable mortgage, which lets borrowers take over the existing mortgage on the purchased property. The responsibility of the debt gets transferred to the new buyer, which means the seller is no longer liable for the loan.
The question is, is taking over a mortgage better than taking out a new loan? While assumable mortgages seem attractive, only select mortgages are eligible for this type of loan, and they come with a few drawbacks.
An assumable mortgage is a type of loan that lets an individual find a home they want to purchase and take over the seller’s existing mortgage without applying for a new home loan. This means the buyer assumes the rate, repayment period, current principal balance, and other terms of the seller’s existing mortgage.
When you assume a mortgage, you become liable for funding the difference between the remaining mortgage balance and the property’s current value.
Keep in mind that when you assume a mortgage, you take over the seller’s remaining loan balance. In many instances, it won’t cover the property's full purchase price, so you’ll still have to put money down to make the difference.
Contact our mortgage experts for inquiries if you want to discuss your mortgage options in Michigan.
While assuming a mortgage might seem tempting, particularly if it has a low-interest rate, applying for a new home loan might be more beneficial. Let’s take a closer look at the cons of assumable mortgages.
The main disadvantage of assuming a mortgage is that you might be required to put more money down than you would if you applied for a new mortgage.
One of the reasons for this is that if the seller has owned the property for a long time, they could have a lot of built-up equity, and you would have to compensate the seller for that equity. Even if the seller doesn’t have built-up equity, you would still be required to pay upfront for any appreciation in the house’s value.
This type of loan is only available in the case of certain loans subsidized by the government. Government-backed loans come with limitations that are nonexistent in conventional loans.
In situations where the homeowner has a lot of equity in their property, you might be required to pay a substantial down payment or take out a new mortgage for the difference between the sale price and the existing loan.
Plus, only certain loans are assumable; if the cons outweigh the benefits, applying for a new home loan is the better option for homeownership.
Ready to buy your first home? Work with Reliance Financial Group today!
We've been helping customers afford the home of their dreams for many years and we love what we do.
Company NMLS: 137288
3501 Rochester Rd
Troy, Michigan 48083
Phone: (248) 687-5250
Hours of Operation: 9:00 AM to 6:00 PM (EST)
Reliance Financial Group Inc strives to ensure that its services are accessible to people with disabilities. Reliance Financial Group Inc has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Reliance Financial Group Inc makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows rfgusa.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Reliance Financial Group Inc accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Reliance Financial Group Inc continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Reliance Financial Group Inc website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Reliance Financial Group Inc website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: firstname.lastname@example.org