How To Assume A Mortgage In Alberta

How To Assume A Mortgage In Alberta

When you assume a mortgage, you take over the homeowner’s mortgage from the current lender at the current interest rate.

If current interest rates are higher than the rates in the assumable mortgage, assumable mortgages are appealing. 

According to Byron Nelson and Brenda Weatherby of the Calgary law firm McGuigan Nelson LLP, Alberta is the only province that permits assumable mortgages without the buyer personally qualifying, but this is not guaranteed.

Obtaining a mortgage may still necessitate loan qualification, If the home’s value has increased since the original mortgage was signed, you must pay the difference to the sellers to assume the mortgage.

For example, if the current interest rate is 6%, the assumable mortgage rate is 3%, and the buyer intends to live in the home for five years, the seller may demand half of the buyer’s often-undiscounted expected savings over the five years. In such a case, the seller may benefit from the assumable mortgage even more than the buyer.

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Are All Mortgages Assumable?

No, not all mortgages can be assumed. 

Conventional mortgages may be more difficult to assume while FHA, VA, and USDA mortgages are easier to assume. 

If Quicken Loans is the mortgage servicer, the loan may be assumable as a conventional loan by a qualified buyer if it is an adjustable rate mortgage (ARM) and the fixed period has expired. The loan can be fixed or adjustable in the case of FHA, USDA, and VA loans.

It should be noted that assumption is sometimes easier in cases of inheritance or property transfer that does not involve a sale. 

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Process Of Assuming A Mortgage

Find a home with an assumable mortgage:

Find and contact a reputable real estate agent, and ask them to assist you in obtaining an assumable mortgage.

Determine the cost for assuming the mortgage:

Subtract the selling price from the homeowner’s mortgage balance to determine the amount you may have to pay to assume the mortgage.

Draw an agreement:

Consult with a lawyer and your real estate agent to draft a conditional offer for the home, which should include any requirements that must be met before the offer is finalized.

Please keep in mind that the amount must be available in cash or financed, and if financed, it must be less than 75% of the home’s appraised value.

Reach and sign an agreement:

Sign the mortgage assumption agreement reached with the original homeowner and the mortgage lender.

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Advantages Of Assuming A Mortgage

1. If the assumed interest rate is lower than current market rates, the buyer immediately saves money

2. There are also fewer closing costs when taking out a mortgage, t his can save both the seller and the buyer money. If the buyer can obtain a lower interest rate, the seller may find it easier to negotiate a price that is closer to the fair market asking price

3. The seller may also benefit from using the assumable mortgage as a marketing strategy to attract buyers because not all mortgages are assumable, the seller may gain an advantage over the market competition.

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Disadvantages Of Assuming A Mortgage

1. A buyer who assumes a mortgage may need a large sum of cash or a second mortgage. If the home is worth more than the mortgage remaining on it, the buyer must make up the difference.

2. A second mortgage is difficult to obtain because there are two mortgage lenders involved, and the contractual details are complicated if the buyer defaults. Furthermore, assuming another loan cancels out the benefits of the assumable loan.

Originally posted on February 23, 2022 @ 10:17 pm