Buying with assumable home loan – how does it work?
Answer:The assumable home loan will transfer loan obligations from seller to buyer, as stipulated by the law of the particular state. Lenders' permission for assumable home loans will most often be required, except for FHA and VA loans.
If you are a buyer in a time with mortgage climbing rates, an assumable home loan will probably offer better rates and allow a very attractive purchase. Also, closing costs will usually be lower than those of acquiring a new loan, even despite the assumption fees.
Also, according to current law you will have to get approved by an agency if you want to get an assumable loan. Thus sellers usually protect themselves - by asking an agency to underwrite the potential buyer.
As you may guess, lenders do not approve many assumable home loans. They would rather have the old low-rate loan repaid in full and reinvest the money into a new loan with higher rates, than have it assumed by a new buyer who even may come out more default-prone than the original client.
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