Why You Should Build Your Portfolio With Assumable Mortgages

FinanceMortgage & Debt

  • Author Dave Lindahl
  • Published October 14, 2010
  • Word count 498

One of the most difficult and time consuming aspects of a real estate transaction for the investor is arranging financing. This is where knowing about and utilizing the benefits of an assumable mortgage can quickly build your realty portfolio.

Naturally, the first concern any real estate investor has is, what is the best deal they can get on the interest rates for their investment? The bonus with a mortgage that is assumable is that most often it is lower than the rate at the time of the current purchase.

In addition to this an assumable mortgage means not having to pay settlement and finance arranging costs to the same degree if financing from scratch. The biggest issue to deal with is obtaining the approval of the existing mortgage holder. This should not be an issue however if the mortgager is willing to let the mortgage be assumed subject to an appropriate credit clearance of the buyer.

The mathematics have to be considered and calculated when determining to assume a mortgage. Most often the price for the property is going to be higher than the existing mortgage. This means you as the investor will either have to put out the difference by way of a down payment, or arrange for financing.

There are several things you will have to take into account if you have to finance the difference. No doubt the mortgage you are assuming is a first mortgage. Therefore anyone that is going to loan you the balance of the money by way of a second mortgage will have to stand in line behind the first mortgage lenders if you default on the loan. This depending on your finances could make it difficult for you to obtain the financing you need at a rate that you find acceptable.

The bottom line is you need to calculate how much you will be saving if you assume the mortgage vs., arranging for an entirely new first mortgage. Another consideration must be given to the length of the existing mortgage as well. If it only has a short term left is it worth assuming?

One should never just take for granted that an assumable mortgage is the better deal either. When the economy is tight lending institutions offer low interest rates but also some very lucrative incentives. One has to look closely at the benefits of any potential incentives and would they outweigh the potential benefits of assuming the mortgage?

The important lesson with assumable mortgages is to basically, think outside the box. All too often new investors jump at the chance of an assumable mortgage believing it is the ultimate deal. It is important with this type of realty transaction as with any real estate investment to have the mindset of an investor.

This means one must take advantage of real estate education and remember that real estate is an ever changing industry. Therefore, to be a successful investors it means keeping up with the times, all the time.

David Lindahl, also known as the "Apartment King" has been successfully investing in single family homes and apartments for the last 14 years and currently owns over 7,000 units around the US. David regularly shares his secrets and experience on the same stage as Tony Robbins, Robert Kiyosaki, and Donald Trump!

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