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 mortgage.

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 your purchase.

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: bbraxma@telusplanet.net
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