Assumable mortgages

Discussion in 'Economics' started by nutmeg, Sep 18, 2011.

  1. As far as I know, mortgages are not assumable ( some were years ago). A buy or sell has to start over, more closing cost, title insurance, broker fee's, origination fees etc.

    Suppose the law was changed and every mortgage became instantly assumable.

    Plan A - Someone owns a home for example and has a 100k mortgage. Lets say the appraised value is now 80k. Buyer assumes the existing mortgage, moves in. Take it or leave it as far as what the house is worth. The seller is out of the obligation, the buyer is taking the risk on future gain in equity or has the home he wants.

    Plan B - 100k mortgage 150k appraised value. The seller is going to eat the costs of re commisions, etc . In this plan, buyer assumes the mortgage @ 100k, and negotiates a down payment directly with the owner either 50k cash or 25k cash, depending on how bad the seller wants out. Or the buyer could take a second mortgage for the 50k and pass the underwriting standards for the 2nd mortgage.

    These plans would keep the existing mbs written months and years ago intact (which seem to be a problem on how to price these without rewrting a bunch of mortgages no one knows who owns.

    Obviuolsy there a few minor details for creditworthy borrows to assume the existing mortgages but would not have to be as dire as current underwritng standards where banks won't lend money to anyone on a new loan.

  2. When your loan was assumed years ago, weren't you still on the hook should the assuming party not make payments?
  3. Mortgages are still assumable,but now you have to qualify for the mortgage. Its not like those loans originating in the 1970s where you just pay the $149 fee (or whatever it was) and the loan is yours no matter what your credit, income or net worth.

    There is a trick to assumming a loan with no credit/bad credit if you have the help of the seller though. What happens is, you have the seller put the house in a trust, then the seller just puts your name as the beneficiary and for some reason, this doesnt trigger the Due on Sale clause. Of course the seller is still on the hook if you dont pay the loan, so the seller needs to be really desperate to do this deal.