Assume a Loan and Acquire a New Loan

[pelvimp]

My father-in-law is willing to sell my wife and I one of his property's. The mortgage is assumable and is currently at 5.8% interest rate. Would it be easier to simply assume the loan or try to acquire a new one at a lower rate? Also, are there closing costs if the loan is assumed. What does assuming entail?

[satxproperty]

You'll probably have to have your father in law call his bank and request a "loan assumption" package.

There are fees associated with assumption and they vary from lender to lender. Also, time varies as well. One lender we ran across wanted 4 months to process the "assumption." (In other words they were not keen on the assumption.)

You'll have to work the numbers, 5.8% but how much time is left on the loan... vs a new loan and the clock starts all over. (i.e. 15 or 30 years or whatever.)

It might be best to contact a local bank or lender, get pre-approved with them and find out what you can about the assumption. (Then you'll be able to compare what your father in laws bank has compared to a new loan.)

Good luck!

[stevetrang]

Randy made some good points, and let me elaborate on one of them. If your father in law is far along in the clock (say 5 plus years), then you may be better off assuming the loan because a much larger of your payment will go toward your principle versus a brand new loan. Good luck!