The following is a guest post from Gabriel Knight, a financial blogger who regularly writes various kinds of articles about real estate and the mortgage industry for many websites.
You must be aware of the fact that a home purchase usually requires systematic and lengthy paperwork while you are working with a mortgage loan. You should also know that you may not be able to buy a home without taking out a mortgage. Proper verification will be done on all the documents that you provide to the lender before he agrees to approve your home loan. An assumable mortgage provides an alternate option through the loan origination process. Although the B-type mortgages may have less favorable loan terms, the homebuyers can enter into a B-type mortgage under definite conditions.
B-type mortgages – So what are they actually?
Mortgage loans fall into different categories and provides great help to different home buyers in terms of credit score, credit history and financial condition. The different types of mortgage loans consists of A, B, C and D.
Federal institutions such as the Federal Home Loan Mortgage Corporation, or Freddie Mac and the Federal National Mortgage Association, or Fannie Mae have set specific requirements for loan types with A-type mortgages. These mortgages have strict eligibility criteria for the borrowers. The B-type mortgages have a less strict requirement and as such, enable the borrowers to qualify for a mortgage even if they have less than perfect credit. This means that a home buyer who is looking to assume a B-type mortgage may also have a much easier time getting qualified.
Assumable mortgage loans
When an individual thinks of an existing mortgage, he agrees to accept the outstanding debt depending on the loan term period. Unless a mortgage agreement particularly forbids the buyer from selling the mortgage as an assumable loan, any mortgage can meet the criteria as assumable. As B-type mortgages come in different kinds such as interest-only, fixed-rate and adjustable rate, buyers agree to take for granted whatever terms exist within a B-type mortgage loan agreement. This means an individual who presumes an interest-only mortgage may see a considerable increase in the monthly premium after assuming the mortgage.
Mortgage types – What you need to know
Assumable mortgages provide a suitable way for the homebuyers to obtain better interest and loan terms than the present market offers. The terms of an assumable mortgage can vary according to the condition of the agreement. A homebuyer can make an upfront payment to a seller as sellers may increase the sales price in order to pay compensation for the decreased rates that the buyers get. The buyers will be making monthly mortgage payments directly to the lender. A homebuyer may also make monthly payments to the seller, who in turn, will pay the lender on the buyer’s behalf. In this case, the title will remain in the name of the seller until the buyer repays the loan. Another suitable option is a trust fund account in which the purchasers deposit monthly mortgage payments and the sellers can withdraw some percent of interest as a part of the sales contract.
There are some kinds of mortgage loan, such as VA and FHA loans that do allow for loan assumptions, though purchasers must go through an approval procedure with the lender. In some cases, the lender allows a mortgage assumption provided the buyer agrees to specific terms like the increase in the rate of interest. The mortgage lenders may charge an assumption fee which amounts to 1 percent of the balance due on the loan on an average.