Why would you assume a mortgage?
Buyer gets a lower interest rate: For buyers, the biggest benefit to assuming a mortgage is the ability to take on the seller's lower interest rate. This can be an especially attractive outcome in a rising rate environment.
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.
Remember, when you assume a mortgage you're taking over the homeowner's remaining loan balance. In most cases that won't cover the full purchase price of the home, so you'll still need a down payment to make up the difference.
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.
Applying for a loan assumption is similar to the process for 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.
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.
Loan assumption, however, allows a buyer to take over the current owner's mortgage while the loan's terms — including the repayment period and interest rate — remain the same. Ultimately, it can help people get into a home at a lower interest rate even as the housing market around them becomes more expensive.
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.
Loan assumption presents an alternative way for a seller to sell a property to a buyer. This option could prevent a seller from facing a short sale or pending foreclosure. With an assumption, the buyer takes title to the property and assumes the payments due on the mortgage without having to obtain new financing.
VA mortgage: There is no minimum credit score set by the Veterans Administration, but individual lenders typically require a score of 620. FHA mortgage: To assume an FHA mortgage, buyers must have a FICO® Score of 580 or higher. USDA mortgage: A buyer needs a FICO® Score of 640 or higher to assume a USDA mortgage loan.
Are there closing costs when assuming a mortgage?
There are assumption fees charged by lenders that may be limited by mortgage investor policy and state rules. You'll still pay other closing costs as in any mortgage closing, but these are usually less because there is less paperwork and typically no appraisal fee.
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.
In some situations, a buyer may be able to assume the seller's existing mortgage. The buyer takes over the seller's mortgage payments, and the seller receives the value of their equity in the home.
Yes, it is possible to take sole responsibility for a home that you're currently sharing without refinancing, even if your ex-spouse or another co-borrower or cosigner is currently on the mortgage. As long as both names are on the mortgage, both parties will continue to be financially responsible for repaying the loan.
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.
An assumable mortgage requires the lender's approval. You will reach out to the current lender that holds the mortgage for specific instructions, which could take up to 60-120 days. If mortgage assumption is made informally and the lender finds out – they can demand payment in full immediately.
In short, assumptions lead to faulty conclusions. And faulty conclusions can spark disastrous conclusions. It is, therefore, in your best interest to take the prudent approach and ask the questions that will uncover the answers you need to unravel the issues before you.
To assume a mortgage, you'll need to provide proof of inheritance to the mortgage servicer. This typically includes: Death certificate. Property deed.
Your loan documents should indicate whether your mortgage can be assumed by your buyers. If your loan is government-backed, it's assumable under the right circ*mstances. You must be current on your loan payments to offer an assumption. Make sure you understand your loan terms and can explain them to your buyers.
Wrong assumptions lead to bad decisions, poor planning and unwanted outcomes. Assumptions are often necessary for decision-making, but we need to avoid wrong suppositions if we want to make the right choices.
Can I change my mortgage to assumable?
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.
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.
Conventional loans, which are made by private lenders and account for about 70% of new mortgages, are generally not assumable (except in some instances such as death or divorce). Conventional loans usually have a “due on sale” clause that allows the lender to be paid in full when the property is transferred.
Loan assumptions may remove a borrower's liability under a note, and from the mortgage account, but their name will remain on the original mortgage document.
When you assume a loan, the mortgage may not cover the cost of the home. This means you may need additional financing or a down payment, along with the payment you make to the seller.
