Is It Mortgage Assumption or Subject to Mortgage?

man signing loan document in front of banker
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Assuming an existing mortgage when buying a home is quite different from buying subject to an existing mortgage. A loan assumption will always require the approval of the lender. That's because you're assuming the liability for the mortgage from the previous borrower. Many loans today are not assumable. Should you assume a mortgage, the original borrower is no longer liable, and you are liable for payments on the loan and you will be the party named in the foreclosure action.

When you purchase the property subject to an existing loan, the original borrower is not released from liability. As the purchaser you will assume the payments and hopefully make them on time as required. Should the loan become delinquent, the original borrower is named in any action or subsequent foreclosure. Should you purchase the property subject to a mortgage, and the person from whom you purchased it had done the same, the original borrower at the beginning of the chain is still liable.

Mortgages in Real Estate 

Mortgages are how most properties are purchased in this country.  It's big business, and the government is heavily involved.

DefinitionA mortgage is a long-term loan that is secured by the value of the house. It charges a low interest with a 15 to 30 year term. It is designed to make home ownership more affordable. 

Fixed-rate mortgages have been the mainstay of the home loan industry for decades.

Over the years, loan-to-value ratios have fluctuated and interest rates have moved up and down, but the security a fixed-rate mortgage offers has never lost its appeal.

There are many reasons we love FHA loans today. FHA loans initially fell out of grace for a few years, but since 2005 have rebounded!

It's an institution that has been around for a long time, since June 27, 1934. The Department of Housing & Urban Development folded the Federal Housing Administration (FHA) under its umbrella in 1965.

Congress created the VA Loan Guaranty Program in 1944 to help returning service members achieve the dream of home ownership. Since then, the Department of Veterans Affairs has helped more than 18 million military members purchase homes.

What is a second mortgage?  You may be familiar with a plan-vanilla mortgage, so what’s a second mortgage? It’s simply another mortgage on your home – a loan secured against the property. The term “second” indicates that the loan does not have priority on your home in case you default. Instead, your first mortgage (typically the loan used to purchase your home) has priority and that loan would be paid off before any funds go towards the second mortgage.

The interest-only mortgage has become a popular choice for investors in areas in which rising property values have made finding positive-cash flow investments particularly difficult.

An interest-only mortgage loan allows an investor to defer principal payments for a predetermined period, generally from three to ten years.

During this time period, the borrower pays only interest. After the initial period has ended the loan is re-amortized in order to pay off the principal over the remaining years.

Real estate agents work with buyers with varying experience in buying homes and getting mortgages.  For the first time buyer there is going to be more support necessary in the way of explaining the different types of mortgages and the process to apply to a lender and finance a home.  You may also be called upon to explain mortgage options to new real estate investors.

Buyers, particularly in the commercial real estate markets, also use blanket mortgages for a number of reasons. Lenders make money making loans.  If the numbers work and they get enough security, commercial lenders will originate blanket mortgages used in commercial property investments.

 Perhaps your next investment would be better served using a blanket mortgage.

That's the lowdown on mortgages, and most of us will be using one or more in our lifetimes, so it's good to understand the basics.