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 person assuming the loan may need to complete an application and meet credit, income, and financial requirements to be approved. The person assuming the loan typically needs to provide a final Divorce Decree, as well. The other person is typically released from liability to pay the loan.
To assume a mortgage, your lender has to give you the green light. That means meeting the same requirements that you'd need to meet for a typical mortgage, such as having a good enough credit score and a low debt-to-income (DTI) ratio.
What is an assumption? A home loan assumption allows you as the buyer to accept responsibility for an existing debt secured by a mortgage on the home you're buying. The two processes available to suit your needs are Qualified Assumptions, and the Name Change and Title Transfer Requests.
Because the mortgage lender isn't involved and doesn't put the buyer through the underwriting process, it's a much riskier transaction. In practice, it means if the buyer fails to make payments or otherwise breaches the mortgage contract with the lender, both the buyer and seller are liable.
However, you'll likely need to provide a certified copy of the borrower's death certificate (and potentially the borrower's will). If you are a joint owner, you will likely have to show the deed with your name on it. Once you've assumed the loan, you can continue making payments on it or opt to refinance.
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'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. If you don't have an assumable mortgage, refinancing may be a possible option to pursue.
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.
Keep in mind that the average loan assumption takes anywhere from 45-90 days to complete. The more issues there are with underwriting, the longer you'll have to wait to finalize your agreement. Do yourself a favor and get the necessary criteria organized in advance.
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.
In order to assume a commercial mortgage, the original loan documentation must include an assumption clause. The new borrower must also be approved by the lender, who needs to ensure the borrower has the financial means to repay the loan, and that they aren't going to be a serious financial risk.
An assumable mortgage allows the buyer to purchase a home by taking over the seller's mortgage loan. Some buyers prefer to purchase a home with an assumable mortgage because it may allow them to take advantage of a lower interest rate.
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.
Yes, family members can assume a mortgage. Federal law requires lenders to allow for such transfers in cases of inheritance, and some lenders might make an exception for transfers between parents and children.
If your original lender allows you to transfer the loan to another person, that person will need to provide them with information. The new loan holder will have to fill out a new loan application and provide a copy of their credit score. They'll also need a copy of their driver's license and proof of insurance.
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.
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. Although a higher credit score won't lead to a lower interest rate—because you're taking over the current loan's rate—it might increase your chances of approval.
Do heirs need to requalify for an inherited mortgage? Generally, beneficiaries can assume an existing mortgage under the same terms without having to requalify.
Of course, whether the lender will allow you to take over a deceased person's debt on a property depends in large part on your credit and the value of the home.