Alberta is the only province in Canada where you can assume
a mortgage without qualifying. What does this mean? Well,
let’s say a home is listed for $189900 and has a mortgage
of $160000. If, after negotiation, you are able to purchase
the home for $187000 then your “cash to mortgage,”
or the amount of money you have to pay to buy the property,
is $27000. In this example you would be assuming the existing
mortgage without qualifying.
In other words, a lender would not be able to put your financial
situation under a microscope, looking at such things as credit
rating, employment history, annual income, amount of debt
you can reasonably service (debt service ratio), monthly expenses,
etc. If you were to apply for a mortgage through a lender
or a mortgage broker all of the aforementioned would be examined.
The upside of assumable mortgages:
Cheaper legal costs. Since the mortgage is already
registered on the property, a lawyer doesn’t have to
charge you to register one. The average legal cost for conveying
title for a buyer on an assumable mortgage is about $550,
compared to about $750 if you bought and created your financing
through a lender or mortgage broker.
You can own as many properties as you want. As long
as you have cash to buy real estate, you can own a number
of properties. If you are creating your own financing, you
will reach a point where the lender will decide your debt
service ratio is such that you cannot qualify for another
Great interest rates. If interest rates increased
within a one year period and you bought a home with a one
year old mortgage, you would get a better rate than if you
created financing to buy.
Buy with bad credit or no credit. Since you don’t
have to be qualified by a lender to buy an assumable mortgage
property you can purchase a home with a blemished credit history
or even if you have just declared bankruptcy.
The downside of assumable mortgages:
Typically there is not as much housing inventory for assumables.
So, you may not get to look at as much inventory as you would
if you could qualify for a mortgage.
Paying top dollar for your home. Many assumables
are priced at or slightly above fair market value. So, in
many cases, if you cannot qualify, you will pay a premium
to assume a mortgage without qualifying. However, in most
cases, paying a mortgage and gaining equity is usually better
than paying rent.
Higher interest rate. If interest rates have gone
down in the last two years, and you buy a home with a two
year old mortgage, your interest rate would be higher than
if you were able to qualify.
When to start looking:
If you decide an assumable mortgage property is what you
want,make sure you have enough money before you start searching.
Typically, the good assumables start in the $15000 to $25000
cash-to-mortgage range. Usually the more money you have available
to put down, the more inventory you can look at before making
If you have any other questions regarding assumables, or
you require assistance with your home search, feel free to
call Brian Braaksma, Sutton Canwest Vista, 278-9208, e-mail:
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