If you’re looking to purchase a new home, you’ve likely become familiar with many facets of the home-buying process, from getting pre-approved for a mortgage and signing a purchase agreement to providing your lender with all the personal information necessary to close the deal. While most buyers pay for their new homes by getting their own mortgages, sometimes it’s possible to assume an existing mortgage, essentially taking over payments and responsibility for the loan.
You may think that because you’re simply taking over the seller’s existing mortgage, the transaction should be free of the typical closing costs associated with a mortgage loan. While mortgage assumptions do include far fewer closing costs than a typical mortgage assumption, there are still a few fees you’ll be required to pay. One of these is your agent fee. Fees for real estate agents and brokers are paid at the close of the transaction. If you used a real estate agent to help you find your property, you’ll need to pay her fee, regardless of how you pay for the property. A seller will also need to pay his real estate agent fee if he used one, although most people who offer a mortgage assumption do not use a real estate agent.
Where a mortgage assumption will save you is with the other closing costs normally associated with a mortgage. Among these are the loan origination fees, prepaid property taxes, prepaid interest and title insurance fees, to name a few. Since you are assuming an existing loan, you won’t need to pay for most of these items. However, the lender will likely charge a loan assumption fee, which is typically much less than the closing costs associated with a new mortgage. Additionally, although you may not need to pay for title insurance to cover your loan, as a new owner you may want to purchase an owner’s policy of title insurance to protect your interest in the home. This fee would be tacked on to your transaction if you choose.
Mortgage Assumption Benefits
The benefits of assuming a mortgage include saving on loan closing costs and possibly getting a lower interest rate than is currently available on the market. You can also save on down payment costs if the seller has little or no equity in the home.
Mortgage Assumption Requirements
To assume a mortgage, the mortgage must be insured or guaranteed by either the U.S. Department of Veterans Affairs (VA), or the Federal Housing Administration (FHA). Additionally, the lender must approve you in order for you to take over the mortgage, so you’ll need to provide the same personal information and documentation as you would if you were applying for the mortgage. You’ll also need a bit of cash on hand to cover the lender’s assumption fee, your agent fees, title fees and any other costs your lender may require.
Kristen Radford Price began writing in 2005 for her campus newspaper. She has served as a feature writer for the life-and-style section of the "Daily Herald," a contributor to "Utah Valley Weekly," an editor for a small publishing house and now as director of communications for an Internet company. Radford has a Bachelor of Arts in journalism from Brigham Young University.