Definition
Assumable Mortgage
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An assumable mortgage is a home loan for a property in which a new owner can legally takeover from the previous owner upon the transfer of property ownership.
This means that the new property owner would not have to apply and get approval for a new housing loan to finance the property as the existing loan is already financing it.
This removes the tedious work involved with getting loan approvals, helps save loan closing costs, and can speed up the time to closing.
A low interest rate on the current mortgage would also help the new owner to save money on interest costs should the current market have mortgage rates way higher than the existing loan.
However, sometimes assuming a mortgage might not be as simple and straight forward as it sounds.
While assumable homes loans contain a provision for assumption, the lender might retain the right to accept or reject a new borrower depending on criteria.
The new borrower might have pass stringent credit stress tests in order to be accepted.
Because of the numerous benefits with loan assumptions, especially in a market with rising interest rates, lenders are very wary of fraud when it comes to such cases.
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