Yes, you can buy someone's mortgage from the bank, but it's not common. This process, called a mortgage assumption or transfer, requires the bank's approval, and you must meet their credit and financial criteria.
It depends. A mortgage takeover can be beneficial in certain situations, such as when the seller's original mortgage has a lower interest rate than what is currently available on the market. However, the process of assuming a mortgage can be complex and costly, and not all buyers will qualify.
An assumable mortgage is an arrangement in which an outstanding mortgage and its terms are transferred from the current owner to a buyer. When interest rates rise, an assumable mortgage is attractive to a buyer who takes on an existing loan with a lower rate.
Read our editorial guidelines here . 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.
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'll have to pay closing costs on a loan assumption, which are typically 2-5% of the loan amount. But some of those may be capped. And you're unlikely to need a new appraisal. So you may pay less on closing than a 'typical' home purchase — but only a bit less.
A transfer of mortgage lets a buyer take over the current homeowner's mortgage, assuming the same terms and conditions as they take over responsibility for payments. If your mortgage allows it, this strategy can help you avoid foreclosure, but it can have advantages for the new mortgage owner as well.
Quick google searches reveal that 60% of homes have mortgages and 23% of those mortgages are assumable (as of May 2024).
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.
The right to potentially assume (take over) the mortgage.
All successors in California have a right to apply for an assumption of the loan, as long as the loan is assumable. The servicer may evaluate your creditworthiness, including your credit scores, when considering you for an assumption.
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.
Not all mortgages are assumable, but you can tell if you have one by the language in your note and mortgage. You can also find out by speaking to one of our assumption specialists at 1-800-340-0570. If you have an existing assumable mortgage, you may be able to add or remove borrower(s) through an assumption loan.
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.
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.
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.
FHA Loan Assumption Requirements
Buyers wishing to assume an FHA mortgage must have a minimum credit score of 620, although buyers with scores above 580 may be eligible with additional restrictions.
The states with the highest share of assumable mortgages are Alaska (39.3%), Wyoming (34.4%), Virginia (34.1%), Nevada (32.8%), Oklahoma (32.5%), Maryland (32.1%), Georgia (31.5%), Louisiana (31.5%), New Mexico (31.4%), and Delaware (30.8%).
You can take over someone else's mortgage without refinancing. You don't need your own loan to do the takeover, and it's not subject to due-on-sale restrictions that prohibit transfer without refinancing. That means if you have a loan with another lender, you can still get this done!
Yes, you can add someone to your property title without including them on the refinanced mortgage loan.
A deed in lieu means you and your lender reach a mutual understanding that you're no longer able to make your mortgage payments. The lender agrees to avoid putting you into foreclosure when you hand the property over amicably. In exchange, the lender releases you from your obligations under the mortgage.
Cons On An Assumable Mortgage
If you don't have that much cash, you'll have to take a second mortgage at current rate to cover the shortfall. You'll have to assume mortgage insurance payments: Most FHA and all USDA loans will include a monthly mortgage insurance payment in addition to the mortgage payment itself.
Applying for a loan assumption is similar to the process of applying for a new mortgage. You will need to complete an application, provide documents, meet our credit, income, and financial requirements, and pay closing costs to get your loan assumption approved. Learn more about mortgage applications.
Only government-backed mortgages, from the Federal Housing Administration, U.S. Department of Veterans Affairs or U.S. Department of Agriculture, are assumable. Conventional mortgages typically have to be paid off when the house is sold.