Nadel & Ciarlo, P.C.

Don't get into assumption financing without careful consideration

What is assumption financing in regard to a home mortgage?

Essentially, it means you obtain an ownership interest in a home from someone else by accepting the responsibility for the payments and terms of the existing mortgage. Often, the original buyer will also remain liable for the loan as well -- just in case you default. (On rare occasions, the bank may agree to release the original borrower from liability.)

Loan assumption was once a popular form of owner-assisted financing. It stopped being popular back when interest rates on real property fell, and home loans were easy to obtain. Now that the mortgage market has tightened up, loan assumption has once again become a more common option for buyers.

However, you need to be careful before you decide to step into a deal to assume another person's mortgage. You are, after all, agreeing to take over payments at an interest rate that may be higher than the going rate right now. You're also agreeing to payment terms -- including any penalty clauses -- that you never negotiated yourself.

You should also never jump into a loan like this without doing your due diligence as a property buyer. Make sure that you have the property appraised so that you know about any problems -- and know it's actually worth the investment that you're about to make. You should also sit down with an experienced real estate attorney to review the terms of the original mortgage -- along with the proposed agreement between you and the property's seller -- before you make any deals.

If you're thinking about a mortgage loan assumption in New York, contact our office or browse our site for more information.

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