Ask the Expert

Q I'm applying for a mortgage and now my neighbor tells me I should not buy the car I've been considering. Is that true?
A As a general rule, it is a good idea to avoid all major purchases before you close on a loan. Don't buy cars, appliances, furniture, or any big ticket item. Don't lease a car. This is generally because a lender will pull your credit report before they make the loan. Any major, new financial burden you incur can change your debt to income ratio. If this happens you may no longer qualify for a home loan or the loan package will have to be changed to accommodate the new circumstances.
By the way, be sure to make absolutely sure all your bills are paid on time before you close. Unpaid bills can also change your profile with a lender since you become less credit worthy.
Q My real estate agent tells me that a home I am interested in has an 'assumable mortgage' and will be a good deal for me. What is this and why is such a mortgage a good deal?
A Sellers can make their properties more attractive by offering an assumable mortgage. An assumable mortgage is a loan that enables a buyer to take over a seller's mortgage and assume all the responsibility for existing mortgage (if the lender agrees to the deal.) This can be a good deal for the buyer if the seller has a lower-rate mortgage than that which is currently available.
The mortgage, however, might not cover the full cost that the seller wants out of the home. Say the seller has a low-interest $100,000 mortgage on the property, but the seller wants $150,000 for the house. In this case, the buyer can assume the low-interest $100,000 mortgage, but will still have to come up with $50,000 either by borrowing it (at current interest rates) or by paying cash.
The lender can also change the terms for the buyer, or not agree to the assumption of the mortgage, if the buyer is not sufficiently credit worthy.
Sellers must be sure to release their liability in writing at the time of the assumption of the loan, to ensure that they are not held responsible for the mortgage if the assuming party defaults.