Although assumable home mortgage loans were common years ago, today they’re fairly rare. The fact is many lending institutions have added a section to their mortgage contracts, called a “due-on-sale” clause, that requires home sellers to pay their mortgage loans in full at the time they sell their homes. This being said, there are still instances where assumable mortgages are available and may be a viable option. The process however, can be complicated and assuming someone else’s mortgage may actually be disadvantageous. For this reason, it makes sense for anyone contemplating assumable mortgages in Calgary to seek the advice of a qualified local mortgage planner.
Assumable Mortgages in Calgary: Positives and Negatives for the Buyer
The main financial advantages to assuming an existing mortgage include the following:
* Obtaining a more favorable interest rate than currently available
* Avoiding closing costs
* Saving on the expense of an appraisal
* Securing a shorter-term mortgage contract
The downside, however, is that the home buyer will be responsible for paying the seller a cash amount equal to the equity built up in the home and any appreciation in value that’s occurred since the original mortgage was obtained. This could amount to a substantial amount of up-front expense required. If a new mortgage loan was secured instead, that money could go toward the down payment requirement.
Positives and Negatives for the Seller
For those owning a home with an assumable mortgage that has flexible options and an interest rate lower than what’s currently available, these factors may be used to help successfully market the sale of the home. It’s important, however, to ensure that a lender releases the seller from liability in the event that the new buyer who has assumed the loan defaults on the payments. Whether you’re a buyer or a seller contemplating a transaction involving assumable mortgages in Calgary it’s strongly recommended to get the advice and guidance of a professional mortgage planner here in the area to sort through all the details involved.
Contrary to what some may wrongly assume, the process involved in qualifying for an assumable mortgage is no easier than qualifying for a new, conventional mortgage. One is still required to pass the standard credit check, as the days of the “non-qualifying” mortgage are long gone. An assumable loan cannot be transferred from one party to another without approval of the lending institution. This is to prevent people with poor credit histories of taking on a mortgage for which they don’t qualify.
An exception to this may be if a home is inherited from a deceased homeowner and the heir chooses to move in and occupy the home. In a case such as this the lender cannot stop the loan assumption. The same may hold true in a divorce where one spouse is awarded ownership of the home.
At Mortgages By Candice, we have access to multiple lenders offering the best rates and incentives in Calgary. Contact us for advice or assistance with any questions regarding obtaining the very best mortgage options available.
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Controlling the controllable
The circumstances which can lead to mortgage payment default are many; Some within a homeowner’s ability to control and others are not. In cases where events are beyond a homeowner’s control, mortgage holders have been known to offer assistance by providing a grace period or a temporary reduction in payment until circumstances improve, and some semblance of normalcy is restored to a point where the home owner can resume regular payments.
Events which qualify for this type of lender assistance may be illness, death in the family, divorce, and in some cases, unemployment. In rare cases, such as a recession or governmental order, mortgage holders have provided similar assistance to their mortgage customers. However, when a default occurs which could have been prevented, there is little help or sympathy from the lender – or anyone else for that matter – because the proper steps to such prevention were not taken by the home owner.
At the moment when the decision is made to purchase a home, several questions may enter the thoughts of the decision maker(s), and conversation topics probably range from affordability to property type and neighborhood. Generally, prospective home buyers are able to determine how much they can afford to pay for monthly housing expenses, so the affordability factor is usually not an issue; and invariably they would have already decided on what type of home is suitable enough to meet their family’s needs, as well as where that home should be located.
Once an offer is accepted, home buyers will sometimes insist on a professional engineers report, or in the very least, a professional property inspector’s report so that they will have a complete understanding of the property’s physical condition.
Obtaining one of these reports (more home buyers opt for the inspection report based on cost, but the professional engineer prepares a more comprehensive report which is justifiably more expensive) apprise a home buyer of any physical defects in the home and – based on my experience in the real estate and mortgage fields – that’s the extent to which many buyers have been prepared go with regard to completing any needed repairs recommended in the property inspection report.
Most homes are sold in “as is” condition subject to normal wear and tear, so most home sellers would usually refuse to complete such repairs. I must point out here that repairs recommended by a professional engineer or home inspector may not be the same as any repair work or improvements required by a HUD appraiser.
Barring a discovery of glaring defects in the property condition, many transactions proceeded to closing with those recommended repairs undone because most of the buyer’s savings went toward down payment and closing costs necessary to complete the purchase. Today’s buyers have an option.
It is at this juncture in the transaction (between the accepted offer and contract signing) when every home buyer should make a decision to grasp control of a circumstance which have caused many a home owner to unwittingly default on mortgage payments.
Unexpected repair of major working components in a home – heating/air conditioning systems, plumbing and electrical components, among others – have been known to create havoc with a family’s budget, and as a result, have lead to delinquency in mortgage payments. This is the kind of controllable circumstance to which I referred earlier.
Home buyers can control the occurrence of unexpected repairs to the home they are purchasing by utilizing a special government program which is available to them at the time of purchase. I said special because it provides the home buyer with a uniquely affordable method to eliminate potential budget shattering, unexpected major repairs far in advance of when such repairs are likely to occur.
The HUD Section 203k rehabilitation loan helps home buyers accomplish this forward-thinking, smart method of home buying. This loan program provides financing for needed home repair/rehabilitation in amounts ranging from five thousand dollars ($ 5,000) up to the maximum of 96.5% of the combined home price and repair costs (Total Acquisition Cost).
Repair costs are incorporated into the purchase money mortgage based on required general contractor estimates and HUD consultant work write-ups which are also a HUD requirement. The loan closes, at which time that amount is placed in an escrow account; home sellers receive their net sale proceeds; home buyers receive title to their new home; and repair work begins within thirty days of closing.
The buyer is now assured that all repair work outlined in the HUD consultant’s work write-up will be completed in a workman-like manner, is being paid for without the prospect of huge chunks taken from the housing expense budget, and the threat of an unpleasant circumstance which could otherwise create mortgage payment default has been eliminated. It is a controllable which could be controlled by forward-thinking home buyers who utilize the 203k program to finance their purchases.
Selling a home is ever been difficult. Now every penny counts more than ever which means that every leaky window, every dangling gutter and every ugly cabinet can make a big difference in the price of the house. Price the house incorrectly and it could mean a long stay on the market, a final selling price lower than what the house is worth or both.
Keep a list of all the updates made and be ready to hand it over; a sketch plan of the house indicating square footage also helps. Also have a list of updating done within the last 15 years. Make a note of each update with the approximate date and approximate cost. Also highlight the notable features of the property. Remember to notify appraiser of the new item, like a new roof or insulation. Don’t forget the minor items. For example, I mistakenly told the appraiser we hadn’t updated kitchen but actually we had installed a new sink and had the pipelines sealed. That counts, according to the experts.
Be mindful of peeling paint. Government-insured loans such as FHA and veterans’ loans will require peeling paint to be removed in houses built before 1978. Focus. “Don’t spend money that won’t yield a return on the investment. The best expenditures for most markets are paint, carpet, light and plumbing fixtures. Prioritize what to do; if homeowner who has upgraded and fixed items as they broke, he should be fine.
Location still matters. If there have been changes to the neighborhood, mention them, from a new playground or a supermarket. If the area’s just been declared a landmark, let the appraiser know. Fix leaky faucets, cracked windows, missing hand rails and structural damage.
Also remember the concept of “effective age,” the age the appraiser can assign to a home after taking into consideration updating and condition. Appraisers say they get annoyed enough by homeowners following them around. Appraisers can hack off hundreds, even thousands, of dollars from the house’s value just for having an unkempt yard. Redo the entire kitchen, adding a new faucet can be considered an update and it adds value.
Experts say a clean, clutter-free house can appraise 10 percent higher than the exact same messy home. Carpet on top of carpet will read like there’s a stain. You don’t want to give the appraiser the impression that you’re hiding something. Remove Excess Furniture. The less furniture in a room, the larger the space looks.
Everything in the house should work. If something doesn’t work properly, replace it, fix it or remove it. If there is a feature in the home that is special, point it out. Keep the door open to a phenomenal closet before the appraiser comes.
The Home Valuation Code of Conduct, HVCC, was enacted on May 1, 2009, by the Fannie Mae and Freddie Mac Foundations and the Attorney General of New York. The HVCC is intended to prevent individuals and organizations from having any influence on the requested appraisal itself.
One way the HVCC limits the inflationary practices of appraisals is by requiring the lender to provide the borrower with free copies of the appraisal within three business days.
Lenders are now required to randomly select 10% of appraisals, test them, and report any misconduct to Fannie Mae or Freddie Mac. Estimates of in-home appraisers should not be the basis of their compensation, and the appraisers should be independent of the sales staff of the lenders. State agencies are notified when infraction occurs in the appraisal process.
What is subject to the HVCC? All 1-4 Family loans sold to Fannie Mae or Freddie Mac must follow guidelines of the HVCC. However, the HVCC still is not applicable to FHA, VA, and jumbo loans. Private assignments, such as divorce appraisals, bankruptcy appraisals, tax grievance and tax appeal appraisals, are not affected by the HVCC. The code only applies to appraisals, not affecting automated valuation models, broker price opinions, or tax assessments.
Due to misunderstandings, there is some confusion about the rules and regulations of the HVCC and these facts may clear some of this up: While the HVCC does not specifically prohibit communication between the appraiser and the real estate agent, the borrower is restricted from providing money to the appraiser. Lenders may, however, authorize third parties to select, retain, and provide payment for compensation of the appraiser.
The HVCC does not require the use of AMCs, Appraisal Management Companies. Appraisals may be ordered by lenders from individual appraisers. As long as mortgage brokers are selecting, retaining, or providing payment of compensation to the appraisers, they are allowed to use specific AMCs directed by lenders that use a group of authorized AMCs.
The code does not permit lenders to accept appraisals prepared by appraisers that are ordered by mortgage brokers, nor does it allow mortgage brokers to provide lenders with an approved appraiser list to use when ordering appraisals for that specific broker.
The HVCC puts restrictions on not only the end user, but also every individual and company working in the Home Valuation industry. Fannie Mae and Freddie Mac are the only organizations to implement such regulations; however, many government organizations have pending policies that will also affect liability to both investors and lenders.
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