How does someone assume your mortgage

Fully disclose to the relevant agency that you will be obtaining subordinate financing, and submit any related documentation.

If your home equity loan costs are lower than your overall savings, this strategy might make sense for you. Anyone can do a simple assumption through a purely private arrangement. But these agreements are risky. The trouble with a simple assumption is that the original borrower retains complete liability for the mortgage. And if the lender finds out, it might demand that the mortgage balance is paid in full right away.

Simple assumptions are exceedingly rare except sometimes for family transactions. You may be willing to accept the risk if the person taking on the mortgage is, say, your spouse, son, or daughter. But in most situations, a simple assumption is too risky to make sense. The good news is, with a novation, the original borrower walks away free and clear. Whatever happens to the loan after the transaction is complete is purely between the lender and the new borrower. Government—backed mortgages are generally assumable.

That means an assumable loan will typically be one of three types:. FHA loans are the most flexible. However, the new borrower must meet regional income limits.

VA loans are a little more restrictive. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Home Ownership Mortgage. Article Sources. Investopedia requires writers to use primary sources to support their work.

These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. All of these goods can be smart money-saving purchases. So, what about used mortgages? Here are the basics about assumable mortgages. The interest rate is key, though other factors should be weighed, too.

Overall, assuming an existing mortgage can be simpler, easier and less costly for the buyer, says Lemar Wooley, a spokesperson at the U. Department of Housing and Urban Development. When you assume a mortgage, the current borrower signs the balance of their loan over to you, and you become responsible for the remaining payments. That means the mortgage will have the same terms the previous homeowner had, including the same interest rate and monthly payments. A family member can assume an existing mortgage from a relative who has died, for instance, or, if one person is awarded sole ownership of a property in divorce proceedings , that person can assume the full existing mortgage themselves.

In theory, any type of home loan could have an assumable mortgage clause. However, only three types of loans typically have this feature:. In order for you to assume a mortgage, your lender has to first give you the green light. Here are the steps to take.

How We Make Money. Zach Wichter. Written by. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

An assumable mortgage allows a home buyer to not only move into the seller's former house but to step into the seller's loan, too. Having an assumable loan might give a seller a marketing edge, particularly if mortgage rates have risen since the seller got the loan.

For a buyer, assuming a mortgage can save thousands of dollars in interest payments and closing costs — but it could require making a big down payment.

An assumable mortgage is a home loan that can be transferred from the original borrower to the subsequent homeowner.

The interest rate stays the same. So does the term: For example, if a year mortgage is 3 years old, the person assuming the loan has 27 years to pay it off. Not all mortgages are assumable in a home sale. Buyers can assume federally guaranteed or insured mortgages, but not other types of home loans. That means:.

VA loans, which are guaranteed by the Department of Veterans Affairs, are assumable, and the buyer does not have to be a veteran or in the military. Other loans, called conventional mortgages, generally are not assumable in a home sale. Easier sale: An assumable loan can make the home more marketable if interest rates have risen in the years since the mortgage was originated. Imagine a situation in which someone gets an assumable mortgage with a 4.