How To Assume a Mortgage
7 Steps To Follow

How To Assume a Mortgage:

Assuming a mortgage (taking over the seller’s mortgage) is an easy alternative to getting a loan and can sometimes be the least expensive way to buy real estate as your principle home or as an investment.

Assuming a mortgage is a process where you take over a seller's mortgage and start making their payments on an loan rather than securing your own new mortgage to purchase the Real Estate.

* Most mortgages include a clause that prohibits a new buyer from assuming a mortgage unless they qualify for the mortgage by making the full mortgage balance payable upon the transfer of ownership.

Some loans, like VA and FHA loans may be assumable by qualifying for the existing mortgage.

If you're thinking about taking over someone else's payment, make sure you know how to assume a mortgage before you sign any paperwork or hand over any money to the seller.

Closely consider the terms of the mortgage...

You need to ensure that the mortgage amount is enough for your needs and that the interest rate you are assuming is comparable to current interest or better than current rates for the same length of the mortgage term.

If interest rates have been going up, then assuming a mortgage could be very much in your favor however, if rates have been stable, or going down, you will probably get a better mortgage by going to your local mortgage broker and applying for a new mortgage.

The obvious one being if you have a lower interest rate than the current interest rate you will want to talk to your mortgage company about using any portability option offered by them to finance the purchase of your next new property.

This means you must be purchasing a new property at the same time as selling your old property, and you still need a mortgage.

All of the major mortgage companies insist on the purchaser qualifying for the mortgage assumption, so if you would not normally qualify for a mortgage you will not qualify to assume a mortgage either.

There are several reasons for letting someone assume your mortgage.

Here are two reasons why you may want it:

1). The first is if the real estate market is depressed in your area and you have a lower interest rate on your mortgage than the currently posted rate you are offering the buyer to assume your mortgage.

This may help you to attract more buyers.

2). The second is if someone assumes your mortgage (the whole amount) your lending institution should not charge you any penalty of paying off your mortgage early.

* One thing you must keep in mind if you are selling your property by allowing your buyer to assume your mortgage and your mortgage company does not require the buyer to qualify to assume your mortgage is to check to make sure you are released from any future mortgage liability!

If you are not released from any future liability and your buyer defaults on the mortgage payment the mortgage company can come after you even though you have sold the property!

Seven Steps to Follow:

This will take lots of searching. Generally the owner or a real estate agent will advertise a property that has a favorable assumable mortgage.

2). Make sure you get a copy of the original loan documents (the note) from the seller to see exactly what the terms of the loan are.

It is very important that you fully understand this documentation. Speak with a mortgage broker or seek legal advice before you give the seller any money.

3). Next contact the lender that currently holds the mortgage and ask for an assumption package. This package will contain all of the information you will be need to provide the mortgage company to assume the loan.

4). Review the requirements for loan assumption. Typically, the lender will require a minimum down payment, income documentation (tax returns, pay stubs), satisfactory credit rating and an assumption fee which could be from a few to several hundred dollars.

5). Consider comparing the following:
The difference in the terms of a new mortgage and the mortgage you are assuming. Also the difference between the loan amount you're assuming and the selling price of the property.

You will have to pay the difference in cash to buy the property.

Check with the lender about additional financing. If the difference is more than the money you have in hand today you may need to consider a second mortgage at the same time to make up the difference.

6). Provide the lender with the required documentation.

7). The lender will approve your mortgage assumption or reject it.

how to assume a mortgage

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