Lender approval: First and foremost, you'll need the lender's blessing to assume the loan. Start by contacting them early in the divorce process to see if assumption is even possible. Creditworthiness: Lenders will want to ensure that you're financially able to handle the mortgage payments.
No, you cannot remove someone from the mortgage without refinancing.
Buyer can't assume a conventional mortgage, in most cases: The only types of assumable mortgages are FHA loans, VA loans and USDA loans. In addition, when you assume a USDA loan, you'll likely get a new interest rate and terms, rather than the seller's potentially lower rate.
You'll typically only be able to transfer your mortgage if your mortgage is assumable, and most conventional loans aren't. Some exceptions, such as the death of a borrower, may allow for the assumption of a conventional loan.
An assumable mortgage allows a loan to be transferred from one party to another while keeping the initial terms in place. However, not all mortgages are assumable. Typically, only FHA, VA, and USDA home loans are assumable, while conventional loans are not.
An assumable mortgage allows you to take over someone else's home loan, often at a lower interest rate. Here's how it works: You're able to get a lower interest rate than the existing borrower. This can help you lower your monthly payments by making them more affordable.
A disadvantage is when the home's purchase price exceeds the mortgage balance by a significant amount, requiring you to obtain a new mortgage. Depending on your credit profile and current rates, the interest rate may be considerably higher than the assumed loan.
The exact amount of the assumption fee can vary depending on the lender and the specific mortgage being assumed, but it typically falls in the range of 0.5% to 1% of the loan amount. For example, if a mortgage being assumed has an outstanding balance of $300,000, the assumption fee could range from $1,500 to $3,000.
You Pay the Seller Instead of Making a Down Payment
When you assume a loan, you do not have to make a down payment. Instead, you pay the seller compensation for the equity they have built in the home, or the difference between their mortgage balance and what the home is worth.
Legal Remedies When Refinancing Isn't Feasible
If the spouse who wishes to keep the home cannot successfully refinance it after the divorce, several legal remedies and options may come into play: Sell the Home: One option is to sell the marital home and divide the proceeds as agreed upon in the divorce settlement.
A mortgage loan assumption allows you to buy a home by taking over (or assuming) the owner's mortgage instead of getting a new mortgage. This has advantages for homebuyers and sellers. Homebuyers can get a mortgage with a lower interest rate than may be currently available on the market.
If Your Spouse Isn't Paying the Mortgage
The bottom line is that your soon-to-be ex remains just as financially responsible for your shared mortgage as he or she was before (even if only you are living there while your divorce is pending).
If you want to keep the house and don't have enough equity to do a cash-out refinance or the money to pay your ex their share, the solution might be a home equity line of credit (HELOC) or home equity loan.
You'll be asked to provide extensive documentation, much like you would when securing financing the traditional way. That's why it's important to have copies of pay stubs and W-2's ready ahead of time. Keep in mind that the average loan assumption takes anywhere from 45-90 days to complete.
Mortgage Transfer
Usually a lender will want copies of the divorce decree and a properly executed and filed quitclaim deed in order to transfer the mortgage. Taking over a mortgage is called a mortgage assumption.
Loan assumption is when you take over full responsibility of the mortgage loan. This removes your spouse's name from the loan, leaving you as the sole remaining borrower.
Answer: A qualified assumption requires the assuming borrower to qualify for credit based on current underwriting guidelines. Credit score, debt-to-income ratios and other factors may be used to determine qualification, but vary based on loan type.
Typically, removing a name from a mortgage could require you to pay off the loan in full or refinance it with a new loan. But, there are alternatives where you can take over the loan without paying off it off or refinancing. These could include mortgage assumption, loan modification and bankruptcy.
Assuming a mortgage after death or divorce
You'll get to skip the underwriting process, but you'll still need to pay closing costs and cover any equity the previous owner built.
The mortgage balance, interest rate, and repayment schedule all carry over to the buyer. However, only Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and U.S. Department of Veterans Affairs (VA) loans can qualify. Conventional mortgages cannot be assumed.
Advantages of Assumable Mortgages
If the assumable interest rate is lower than current market rates, the buyer saves money directly. There are also fewer closing costs associated with assuming a mortgage. This can save money for the seller as well as the buyer.
For an official transfer, you'll need to work with your lender to initiate and complete the process. There are also unofficial transfers, where the original borrower continues paying the loan using funds from the new borrower (and neither party notifies the lender).