When you assume a mortgage you are taking over the loan and payments from the seller of the home. Assumable mortgages can be tricky, however, so you will need to be on your toes when it comes to this method of buying a home.
So how do you assume a mortgage once you have found a seller who's offering this type of deal?
You need to first find a property that is available under this type of payment arrangement; then sit down with the seller and lender to make sure that you understand the terms of the mortgage. Usually with assumable mortgages the interest rate is adjustable. You need to find out the current interest rate on the loan, and whether it will go up in the future. Adjustable rates are notorious for going up so much that the buyer can no longer make payments on the mortgage. You need to consider this factor and understand how adjustable rate mortgages work. The only types of assumable mortgages are adjustable rate, VA and FHA mortgages.
Next you need to contact the lender to get an assumption package from him. This package will explain the terms of the loan and whether this is a qualifying or non-qualifying mortgage. With a qualifying mortgage, your credit will be checked to make sure that you can make the payments on the loan. You will usually need a good credit rating for this. For a non-qualifying mortgage your credit is not checked. In either case, the assumption package will have all of the necessary paperwork to assume the loan from the seller.
You will need to review the assumption package you receive to learn the requirements for assuming the mortgage. You will need to provide certain documentation, such as proof of income. The package will also include information on down payment and any fees that will be incurred for assuming the loan.
Also, you will need to consider the difference between the selling price of the property and the loan amount you will be assuming. You will need to pay the difference between these two amounts either in cash or have it financed. Often you will have to take out a second mortgage in addition to the one you will be assuming in order to finance the property.
Finally, you will need to give the lender all of this documentation and finalize the deal.