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Is an assumable mortgage right for you?

When you buy a home, the most common thing to do is to get a brand-new mortgage so that you can pay the seller's asking price. The seller may or may not have a mortgage that needs to be paid off with part of that money.

However, some home loans are "assumable." That means that -- if you qualify - you can actually take over the existing home loan. This is particularly true with homes where the mortgage has been backed by Veterans Affairs (VA), the Federal Housing Administration (FHA) and the United States Department of Agriculture's (USDA) rural housing program.

Why could an assumable mortgage make sense?

Sometimes, a homeowner just needs out of a mortgage quickly. Their job may require relocating, or their marriage may have ended. If they aren't having an easy time selling the property because of a soft real estate market, high-interest rates or a lack of equity, allowing the mortgage to be assumed by someone else just makes sense.

From a buyer's perspective, assuming a mortgage can help you squeeze into an area that would normally be beyond your price-point. If the existing interest rate is low, you can take advantage of the long-term savings. You may also find it less expensive in the short-term, especially with a motivated seller.

Why might assuming a mortgage not work for you?

Taking over the existing loan handles only what needs to be done for the bank. If the seller is asking for more than what's due on the mortgage, you have to pay the seller the difference. You may not be readily able to come up the cash necessary to do so -- and that could mean trying to find a bank willing to give you a second mortgage.

There are a number of complex issues that have to be considered when you're talking about assuming someone else's mortgage. Make sure that you fully understand all of your legal options before you sign on the dotted line.

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