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What Is A Non-Qualifying Assumable Mortgage?
“What is a non-qualifying assumable mortgage?” Well, let’s first talk about what we usually have from institutional lenders and a mortgage. They are not non-qualifying assumable mortgages. They have a clause in the mortgage that says, “In the event that you transfer the property, the loan becomes due and payable.” That’s called a due-on-sale clause. So, you will violate the terms of the mortgage if you convey the property to a third party and have them take over your mortgage.
Now, some Veterans' mortgages are qualified assumable mortgages, meaning that if another veteran is assuming it, he can apply to the Veterans' Administration and see if they will allow him to assume it. With regular institutional lenders it’s very difficult and they’ll probably refinance you rather than try to have you assume a mortgage. So, when do you have an assumable mortgage? It’s usually with a private investor. Whenever an individual holds the mortgage and it does not have the language in there that, “This mortgage becomes due and payable at such time as you transfer the property,” or words to that effect.
So, if it doesn’t have language that it is not assumable, then the mortgage can be assumable. A non-qualifying assumable mortgage would be one that did not contain a due-on-sale clause or a prohibition against someone assuming the mortgage. You don’t find those very often, and I guess probably 20 or 30 years ago the old FHA mortgages used to be a non-qualifying assumable. (But I’m afraid that my age is telling on me and at this point there’s not too many of those around to assume or they’re so small that it wouldn’t make any sense to do it.)
99.9 percent of your mortgages out there do have a clause that makes them non-assumable and must be paid in the amount they’re transferred. However, if you choose to go ahead and just take over the payments for someone, I must say that most institutional lenders have not been exercising their right to call the loan due and payable, and they’re just happy to get their payments regularly. There are some problems with taking over a mortgage that is not assumable, so if you have any questions or would like to work out some creative financing, give me a call at (727) 847-2288.