It can be harder than you think to assume a mortgage. Not only does the mortgage have to be assumable, the buyer has to come up with the difference between the mortgage payoff and the offer price, and the lender has to actually go along with the assumption. Spoiler alert, they aren't wild about it!
To assume a loan, you must qualify with the lender. If the price of the house exceeds the remaining mortgage, you must remit a down payment worth the difference between the sale price and the mortgage. If the difference is substantial, you may need to secure a second mortgage.
While credit score requirements vary based on loan type, lenders generally require a credit score of at least 620 to buy a house with a conventional mortgage.
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.
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.
Once the assumption has been approved, you'll also have to pay closing costs, but these are generally lower when you assume a mortgage compared to getting one on your own.
4. Credit Score. For a $250,000 home, you'll likely need a fair to good credit score: 740+: Best rates and terms.
You can still qualify for a home equity loan if your credit isn't perfect, especially if you meet other criteria like having solid income and a low debt-to-income ratio (DTI). Still, most lenders look for a minimum credit score of at least 680, while more lenient ones may accept a score as low as 620.
You can buy a $300,000 house with only $9,000 down when using a conventional mortgage, which is the lowest down payment permitted, unless you qualify for a zero-down-payment VA or USDA loan. Different lenders have different rules, but typically they require a 620 credit score for conventional loan approval.
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.
How long does it take to complete an assumption? Government guidelines say home loan assumptions should be completed within 45 days of a complete submission, but these are just guidelines. Your assumption can take anywhere between 45/60 days on the fast end and 120+ days on the slow end.
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.
Depending on which situation applies, lenders cannot issue them a home equity loan until they either earn additional equity in their home or pay off some of their existing debts. Another common issue you might run into is having a credit score or payment history not meeting a lender's requirement.
An FHA loan will typically be the easiest mortgage to qualify for because it offers the lowest credit score requirement — far lower than for a conventional loan — and requires only a 3.5% down payment.
Credit Score Requirements for HELOCs
According to Experian, borrowers likely need a FICO Score of at least 680 to qualify for a HELOC, but some lenders may prefer a credit score of 720 or more.
What Credit Score Do You Need for a No Down Payment Home Loan? If you're hoping to purchase a home without a down payment, you'll have to prove a specific income and have a credit score that's at least in the mid-600 range.
What is the highest credit score possible? To start off: No, it's not possible to have a 900 credit score in the United States. In some countries that use other models, like Canada, people could have a score of 900. The current scoring models in the U.S. have a maximum of 850.
Overall, Credit Karma may produce a different result than one or more of the three major credit bureaus directly. The slight differences in calculations between FICO and VantageScore can lead to significant variances in credit scores, making Credit Karma less accurate than most may appreciate.
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.
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.
"In the current mortgage interest environment ... it is nearly always better to assume the mortgage rather than refinance," says Julia Rueschemeyer, a Massachusetts-based attorney specializing in divorce mediation. "Refinancing involves thousands of dollars in transaction fees and higher interest rates."
Newer FHA loans require both buyer and seller to meet specific criteria for an assumable mortgage. Sellers must live in the home as a primary residence for a set amount of time, and buyers must follow the standard FHA loan application process. FHA mortgages are more accessible for buyers with a lower credit score.
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.
Do Lenders Check Your Credit Again Before Closing? Yes, lenders typically run your credit a second time before closing, so it's wise to exercise caution with your credit during escrow. One of your chief goals during escrow should be to ensure nothing changes in your credit that could derail your closing.