Buying Properties Of Assumable Mortgages
An assumable mortgage is a loan on a property you take responsibility for when you buy the property and gain title to its income stream. There
normally is no credit check when you assume a mortgage. Why? Because the sale is between you and the seller with no financial checking of you by a bank, a credit union, or a mortgage lender.
And most sellers will accept you as you are. They won't "pull a credit report" on you if they feel you're a "good guy or gal." So you're into an income property without a credit check of any kind. Steps to take are:
* Get the seller to take a Purchase Money (PM) mortgage for the
down payment if you don't have the cash needed for it.
* The Purchase Money Mortgage becomes your assumable mortgage because there are no credit checks associated with the takeover loan.
* Your seller—in effect—becomes your assumable loan lender.
Properties financed by the Veterans Administration (VA) can have assumable first mortgages. So check foreclosures offered by the VA because you can often get into a single- family home with no credit check and no qualifying requirements.
When you combine an assumable first mortgage with a PM mortgage you have a true zero-down deal. In addition, there usually are NO credit checks of any kind with either type of assumable mortgage!
Assumable Mortgage Possibilities for You
When you think of an assumable mortgage, think in terms of two possibilities:
* An assumable First Mortgage for anywhere from 75 to 90 percent of the purchase price of the property. With a motivated seller, you might even get a 100 percent mortgage—giving you a zero-cash deal.
* An assumable Purchase Money Mortgage for anywhere from 10 to 25 percent of the purchase price of the property.
There's more good news for you on assumable mortgages:
* The lender cannot raise the interest rate on any mortgage you assume. Thus, the rate the seller is paying on the mortgage will be the rate you will pay.
* The lender cannot refuse to allow you to assume the mortgage, if the seller wants you to assume it, unless there's a Dtte-on-Sale Clause in the mortgage. Such a clause requires that the mortgage be paid in full if the property is sold by the current mortgage holder—the seller.
* The lender may omit a Due-on-Sale Clause from an Adjustable Rate Mortgage (called ARM for short). So look for sellers having an ARM on the property you want to buy. (As an aside, let me say that life insurance companies seldom have a Due-on-Sale Clause in their mortgages for smaller properties. So when you learn that the mortgage on a property you're interested in is held by a life insurance company, rejoice! It probably does not have a Due-on-Sale Clause.)
FHA and VA loans made prior to December 1, 1986, did not have a Due-on-Sale Clause in the mortgage. So if you're looking at a property having such a mortgage, you know there's no Due-on-Sale Clause to deal with. After December 15, 1989, all FHA mortgages have the Due-on-Sale Clause in them. Keep this in mind when you look at a property to buy.
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