Can we assume an existing loan when purchasing a pre foreclosure property and should we?
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Answer:
The lender must agree to the assumption for the seller to quit liability. An assumable mortgage has a contract that allows, or does not specifically prohibit, a creditworthy buyer from assuming the existing loan.
You have to weigh up the value of this loan to you. If there is an interest rate better than what you can get elsewhere then it could be a good deal as you will avoid closing costs. The balance owing and the period to run, as well as the length of time you expect to need the loan will all have bearing on the worth of the assumption to you. Your expected savings could be wiped out if you have to take a second mortgage to supplement the assumed one, eg in the case where the assumed loan has already been paid down substantially and the value of the property has appreciated since the loan was taken out. Except I would wonder in that case why the preforeclosure! Another point, where there are substantial savings to be made you can bet the seller will want to share them, usually in the form of a higher price.
As one of the other correspondents says, in recent years a "due on sale" clause means the lender could insist on repayment, but I know some who haven't although the interest rates were then raised to CMV. Where the assumption is allowed, the new borrower must meet all the same qualification requirements of the lender.
I don't even believe that is allowed.
It's not legally allowed for one to assume the responsibilty of an existing loan. At least it's not in my state.
Most lenders want permission before you just take over a loan. The process is very similar to applying for your own loan, so sometimes it is more worth it to just apply for your own loan depending on how much the previous owner owed on his loan. If you just take over the loan, the lender can deem the loan immediately payable, this is called a "due on sale clause."
So, just be sure that you cover all of your bases and weigh all of your options before jumping in to assuming a loan. Good luck.
The current owner would have to have an assumable loan. MOST residential loans are NOT assumable. This is more of a commercial practice. Never hurts to try.
Start over fresh. Do not take up other people's problems. Do you like the bank that the loan is with now or could you get a fabulous deal (interest rate, customer servies, etc.) with a different bank? The deals/offering down here is great so you shouldn't restrict yourself to these kinds of deals. Remember that with a lot of these distress sales, you're going to have a lot of repairs/renovations. There are real savingd to be make going the traditional route as the market is flooded with properties that investors are trying to unload.
Probably not. Think about this. If the existing loan were even close to what the property is worth, the seller would have dumped it before the foreclosure. Most of these houses are 'upside down', meaning that more is owed on them than the current market value would be. You don't want to assume a mortgage for more than the house is worth.
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