A: We plan to put our house on the market for sale in September. Of course, one of the most important aspects of the sale will be the terms of the financing. We have a small mortgage that carries an 8 1/2 percent interest rate, and if this mortgage can be assumed, it will greatly assist us in completing the sale. How does one find out if a mortgage is assumable?
A: The general rule of law is that in the absence of a "non-assumption" clause in your deed of trust (mortgage), the loan is freely assumable at the existing rate.
We have heard a lot about the "due on sale" clause. That clause says that in the event of sale, the outstanding deed of trust is due and payable, at the option of the lender.
If the interest rate is higher than the going market rate, then the lender will be delighted to allow the mortgage to be assumed. On the other hand, if the interest rate is lower than the existing market rate (such as in your case), lenders are very opposed to allowing any assumption.
You must first read the terms of your promissory note and deed of trust. All FHA and VA mortgages are freely assumable.
Recently, the Federal Home Loan Mortgage Corp. announced that, as of Aug. 2, it would no longer permit low-interest loans it has bought to be passed on to new home buyers. The corporation, known in the trade as Freddie Mac, has decided to restrict assumptions on all mortgages it purchased. So you should find out if your mortgage has been sold to that corporation.
Generally speaking, there is no way for you to learn of such a sale, because even if the mortgage has been sold to Freddie Mac--or to any other investor--your original lender will continue to service the mortgage, and you still make your monthly payments directly to that lender.
Contact your lender immediately, in writing. Find out whether your mortgage has been sold, and if so, to whom. You should also inquire as to the assumability of your mortgage, and if it is assumable, at what rate and what condition. Often, a lender will allow an assumption at what is known as a "blended rate," which is somewhat above the existing interest rate, but below the current market rate.
The lender will require the payment of points, and you should keep in mind that each point is the equivalent of 1 percent of the amount of the loan.
If your lender refuses to give you this information, you should contact the Federal Home Loan Bank Board and Freddie Mac. It is my understanding that lenders should have no opposition to telling you the status of your mortgage.
And, effective July 1 of this year, Virginia mortgage holders have obtained some legislative assistance in this area. An owner of residential real estate in Virginia has the right to ask a financial institution organized under the laws of the state for written disclosure of whether it will permit a qualified purchaser to assume a mortgage or deed of trust. The lender must disclose:
The rate of interest to be assumed.
The balance of the escrow account.
Fees and charges for the assumption.
Usual limitations or requirements.
Other pertinent terms and conditions of the assumption.
Benny L. Kass is a Washington attorney. Write him in care of the real estate section, The Washington Post, 1150 15th St. NW, Washington 20071. For a copy of the free booklet, "A Guide to Settlement on Your New Home," send a self-addressed, stamped envelope to Benny L. Kass, 1528 18th St. NW Washington 20036.