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A less conventional way of buying a property involves a process called loan assumption or pasalo, as it’s colloquially called. For those who aren’t very familiar, the name literally means bearing someone else’s debt. Believe it or not, this may actually prove beneficial for you, especially when you’re looking for a good deal in the property market.
On the flip side, sellers can score some really good financial perks in this transaction. Here’s what you need to know about loan assumption or pasalo:
How Pasalo Works
When you buy a property through loan assumption, you’re taking on the mortgage payment from someone else, and at the same time, paying the actual selling price of the property. For instance, the value of a certain home is P5 million, with an outstanding mortgage balance of P2 million. Depending on your negotiations with the seller, you may be able to get the house for only a million pesos or so, as you assume the responsibility of paying the debt of P2 million to the creditor for the next months or years.
Once the title is successfully transferred to you, the former owner will be free from loan obligations as you assume balance.
Why Choose to Assume Balance
The first reason people choose this route when buying a property was already mentioned above: better costs. Usually, such homes for assume balance come with a price lower than the market value for different reasons. In some cases, sellers want to dispose of property fast, so they tend to be more flexible when it comes to pricing. In other cases, the asset has simply depreciated in value over time, and therefore isn’t comparable to other new offerings in the market.
Another financial benefit in assuming the balance is the promising interest rates. In most instances, the assumed interest rate is lower than the current rates. Do take note that the creditor’s permission is still necessary before the transfer, as the law prescribes. More than abiding by the regulations, involving the creditor is important for practical reasons. They need to know who holds the title and pays the monthly obligations after the sale.
The bottom line is, the buyer gets significant savings in pasalo. You can use it to renovate the property and achieve your dream home or sell it yourself for a more competitive price.
As for sellers, pasalo is beneficial for dire financial situations, such as when you’re not able to pay for the current mortgage anymore and you need instant cash. With loan assumption, you get to be free from obligations and at the same time, pool your resources.
What Documents Are Necessary for Pasalo?
The Assignment of Contract is one of the important documents in the loan assumption process. This is a legal document stating that the seller is handing off the contract’s obligations and benefits to you. Basically, there’s an outline of terms and conditions you and the seller agree on. It goes without saying that you should have a competent lawyer drafting or reviewing these kinds of documents to make sure that you’re safe from any potential risks.
Another document necessary in the process is the Notice of Assignment of Contract. Since a third-party is involved, namely the creditor, they need to be notified in writing about your agreement. With this, they should be fully informed that you’re the one settling obligations and receiving benefits moving forward.
Where to Find ‘Pasalo Homes’
There’s no centralized marketplace for ‘pasalo homes.’ In fact, most of the transactions happen because of word of mouth. That’s because most buyers and sellers are more confident in going through the process by virtue of trustworthy referrals. Nonetheless, there are some sellers who use online platforms to promote their properties. For instance, if you go to Lamudi, you’ll be able to find houses and lots, as well as condos that are for pasalo.
How to Have a Smooth-Sailing Transaction
Just like any other purchase deals, be sure to tread this process of assuming balance carefully. Follow these tips to experience less headaches down the road:
- Learn more about the mortgage. Know what type it is. Look into the terms and conditions. The more that you know, the better you can prepare for financial obligations ahead.
- Arrange your finances. Just because you’re getting a good deal doesn’t mean you have to go lax on building up savings. Remember, you’re going to pay the seller upfront for the equity of the property, so you need to be prepared for that.
- Partner with professionals. Find good lawyers and brokers who can help you make good investment decisions.
Are you looking for a good real estate deal in the market? Try the less conventional way of property ownership. It might be just what you need to achieve that home sweet home or first-ever income property.