Many homebuyers fail to realize that assuming a mortgage is a viable alternative to financing a new home purchase. Assuming another individual’s home loan allows the buyer to avoid high closing costs, take advantage of the original homeowner’s interest rate and, in certain situations, obtain a home with instant equity.
Not Every Homeowner Has an Assumable Mortgage
Assumable mortgages aren’t profitable for lenders, since they allow sellers to transfer the home loan -- and its low interest rate. In addition, lenders can’t collect loan origination fees and other high closing costs from the transaction. This has led many lenders to insert a “due on sale” clause into their mortgage contracts. The due on sale clause prevents a homeowner from transferring his home loan without repaying the full amount due on the mortgage.
Individuals with FHA and VA mortgages, however, can often transfer their home loans to other consumers. Although some FHA mortgages contain due on sale clauses, many do not. VA mortgages are always assumable.
