As mentioned, lenders must approve an assumable mortgage. If done without approval, sellers run the risk of having to pay the full remaining balance upfront. Sellers also risk buyers missing payments, which can negatively impact the credit score of both the buyer and seller.
No, you can not add anyone to a mortgage without refinancing. Exactly why do you want to burden your new wife with a mortgage?
Mortgages that are eligible are considered "assumable." In order to transfer a mortgage, the mortgage lender will typically need to verify that the person or entity that will assume the loan has adequate income and credit history to be able to make payments in a timely manner.
An assumable mortgage can be a major selling point for a home, especially if it has a very low interest rate. However, selling a home with an assumable loan can be a lengthy and complex process. Sellers should work with a real estate attorney to ensure they are not held liable for the loan after it is assumed.
The lender of the original mortgage must approve the mortgage assumption before the deal can be signed off on by either party. The homebuyer must apply for the assumable loan and meet the lender's requirements, such as having sufficient assets and being creditworthy.
The Drawbacks of Mortgage Assumption
In a simple assumption, the seller remains liable for the outstanding mortgage debt. If the buyer defaults on payments, both parties' credit scores are affected. This shared risk can strain the relationship between buyer and seller and lead to financial repercussions for both.
VA loans and USDA don't require any down payment and you can get an FHA loan for as little as 3.5% down. But you'll need to make a much larger down payment — at least 15%, according to Tozer — when assuming one of these loans. The reason is, an assumable loan rarely covers the full purchase price of the house.
You'll still need to pay the seller the remaining cost of the home, either out of pocket or with another loan. Seller might still be responsible for the debt: If the buyer doesn't make payments and your lender hasn't sufficiently released you from the debt, your credit could take a hit.
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.
Can a joint mortgage be transferred to one person? A joint mortgage can be transferred to one person, providing your lender agrees to it - they will need to assess your income and expenditure to see if you meet their affordability requirements.
Sellers use assumable mortgages as promotional tools to attract buyers to their homes. They can also streamline the home sale process. The main difference between an assumable mortgage and a traditional one is that the buyer does not need to apply for the mortgage to take it on.
Contact your lender.
Instead, they will likely make you refinance your home, in effect taking out an entirely new mortgage. Adding a person to your mortgage without refinancing can only work if the mortgage is assumable. Federal Housing Administration (FHA) loans tend to be assumable, but other types may not be.
With an assumable mortgage, instead of applying for a brand-new loan, you can take over — or “assume” — an existing one. If that loan has a low interest rate, you can sit back and enjoy the perks of having a rate far below what the current market offers.
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.
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.
What Credit Score Do You Need for an Assumable Mortgage? You'll need to qualify for the mortgage that you're assuming, which means you may need a credit score of at least 500 for an FHA loan or 620 for a VA loan.
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.
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.
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.
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.
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.
Any method of paying for someone else's mortgage would qualify as a gift. In the United States, if you give someone a certain amount of money without receiving a service in return, you become liable for the gift tax.
4-1 GENERAL. All FHA insured mortgages are assumable.