An assumable mortgage is one that a buyer of a home can take over from the seller – often with lender approval – usually with little to no change in terms, especially interest rate. The buyer agrees to make all future payments on the loan as if they took out the original loan.
There are advantages for both the buyer and the seller when processing an assumable mortgage, especially if the seller's mortgage interest rate is much lower than the current market rates, or is lower than the rate the buyer might be able to get based on credit history.
If current market rates are at, say, 6 percent, but the buyer can assume the mortgage at a 4 percent rate, the buyer has immediate savings.
A buyer who assumes a mortgage may have to take out a second mortgage, or come to the table with a hefty amount of cash, if the value of the home is greater than the mortgage that remains on the home.
For example, if the home is selling for $250,000 with a remaining mortgage of $100,000, then the buyer will need to come up with $150,000 to make up the difference. The buyer can do this by paying the rest in cash or take out a loan for the difference.
> VA Loan Assumption:-
Anyone can assume a VA mortgage – as long as their income and credit qualify – but children of veterans can’t get VA loans themselves (unless, of course, they join the military as well). You have to be a current service member, veteran or surviving spouse of a veteran to qualify for a VA loan.
> Here are a few of the main requirements for assuming a VA loan:
* If the person assuming the loan isn’t a veteran, then the veteran will lose their remaining entitlement benefits because the VA benefit stays with the mortgage, not the individual.
* There’s also a funding fee that must be paid: 0.5% of the existing principal balance. Either the original owner or the new mortgage holder can pay this fee.
* Once the assumer gets approved for the loan and the county receives the new deed, the current owner is released from all liability for the mortgage.
In the Q&A, Terry Howell of Military.com also noted that both the Department of Veterans Affairs and the lender have to agree to the loan assumption.
Reference Link: http://vastreamlinemortgage.net/types-of-va-home-loans/