What makes a mortgage not assumable?
Not assumable means that the buyer cannot assume the existing mortgage from the seller. Conventional mortgages are non-assumable. Some mortgages have non-assumable clauses, preventing buyers from assuming mortgages from the seller.
Most conventional mortgages — the most popular type of loan — are not assumable. They contain what's called a due-on-sale or due-on-transfer clause, which mandates the mortgage be paid in full whenever the original borrower sells the property or transfers the loan.
With a due-on-sale clause, homeowners cannot transfer the mortgage to the buyer when selling their property as they could with an assumable mortgage. They must instead use the sale proceeds to pay off the mortgage, and the buyer must obtain a new mortgage on their own.
The VA must approve the loan assumption, and you'll need to meet the VA-approved lender's credit and underwriting requirements. The VA doesn't set a minimum credit score, but lenders can require a certain credit score, commonly 620 or higher.
Unfortunately, most conventional mortgages are not assumable. One of the exceptions is if someone is a successor in interest based on having the property transferred to them during someone's lifetime or after their passing. You can also assume an adjustable-rate mortgage that's outside its initial fixed period.
Conventional mortgages are not generally assumable. But in most cases, government-backed loans are. You can usually assume a seller's FHA, VA, or USDA mortgage. For most buyers, an assumable FHA loan would be the top pick, as VA and USDA loans have more stringent requirements.
USDA loans are usually assumable, but require the prior approval of the USDA. They will not grant an approval if the seller is behind or in default on their payments. In order to qualify: You will need a minimum credit score of 580 to 620, depending on individual lender guidelines.
Most importantly, an alienation clause prevents a homebuyer from assuming the current mortgage on the property. Without this clause, the new owner could assume the existing mortgage and repay it at that interest rate rather than obtaining a new loan at prevailing rates.
1. Ask The Lender If The Mortgage Is Assumable. The current mortgage's original lender has to approve the new buyer before it will sign off on the assumption. The lender will review the buyer's credit score, credit history, income and debt-to-income ratio.
An assumption clause allows the seller of a home to pass responsibility for an existing mortgage to the buyer of the property. The new buyer must meet credit and other qualifications. Assumption clauses are attractive when the interest rate on the current mortgage is lower than the current rates.
How common is it to assume a mortgage?
However, you have other factors to consider before building your homeownership dreams around assuming a mortgage with a 3% interest rate. For one, most mortgages aren't assumable. Typically, only government-backed loans are assumable and the majority of mortgage loans are conventional.
VA Loans dated prior to March 1, 1988 can be transferred without the approval of the lender, and the seller may still be released from liability on the mortgage loan. FHA-insured loans originated before December 1, 1986, generally contain no restrictions on assumability.
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.
An assumable FHA mortgage works in the same way, but a buyer will need to meet certain criteria before taking over an existing FHA mortgage. Among these criteria, a buyer will need a credit score of at least 580 and a debt-to-income ratio of 43% or less.
"Assume" means the buyer takes on liability, and the seller is no longer primarily liable. "Subject to" means the seller is not released from responsibility.
If the current loan terms are favorable (primarily the interest rate), this can be an easy way to protect those favorable terms instead of refinancing, perhaps at a higher interest rate. In most cases, assumption fees are less than the overall cost of a refinance.
Special Circ*mstances. Sometimes a mortgage can be transferred even if it isn't assumable—and a lender might also opt to be more generous and permit transfers on a case-by-case basis. For example, a transfer might be allowed if: You want to transfer the loan to a spouse, child or another relative.
As long as your situation fits one of the exceptions mentioned in the due-on-sale clause, another person can take over and assume responsibility for the loan. If you have an adjustable-rate mortgage or a government-backed mortgage (including FHA, VA, and USDA mortgages), you might have an assumable mortgage.
To assume a mortgage, you'll need to provide proof of inheritance to the mortgage servicer. This typically includes: Death certificate. Property deed.
The due-on-sale clause protects your lender by preventing prospective buyers from assuming your mortgage.
What is a non assumption clause?
In a mortgage contract, a statement that prohibits a new buyer from assuming a mortgage loan without the approval of the lender.
Alienation/due on sale clause requires the mortgagor/borrower to pay of the loan when ownership has been transferred to another party, which means that the loan is not assumable.
Assumable mortgage benefits can have a better interest rate for the buyer than the market rates. For the seller, an assumable mortgage helps them avoid settlement costs. Generally, most mortgages are no longer assumable. Some USDA, VA, and FHA loans may be assumable if they meet certain criteria.
In contrast to an Assumption Loan, the term “taking subject to” is when the buyer incurs no liability to repay the loan. The loan stays in the seller's name, but the buyer gets the deed and therefore controls the property. Although the buyer makes the mortgage payments, the seller remains responsible for the loan.
Processing an Assumption
Once accounting for the $300 VA or $900 FHA assumption fee charged to the borrower, this means that lenders report losses of between $1,220 and $2,830 per assumption.
