Loan assumption

detcastleJuly 26, 2012

Hi everyone,

I was looking at the website for my mortgage company and found something about 'loan assumption.' We are trying to sell our house to the current renters and I wondered if this might be an option. I've never heard of this before so I wondered if anyone had any knowledge or experience with a loan assumption. In our case, if the renters had credit/income that would satisfy the bank, it might be a good deal for everyone. We'd unload the house, the renters could stay in a house they like and refinance when the market is better, and the bank would still get paid and not have a short sale on their hands (when we finally give up!).

I'm going to check our mortgage to see if there is the 'payment in full' clause for sales when I get home.

Thanks for any insight!

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rrah

Your loan documents will indicate if your loan is assumable. FHA loans generally are if you happen to have an FHA loan.

The trick is that the buyers have to make up the difference between the sales price and the loan amount. This can be difficult unless they have the cash on hand.

If your renters have the credit scores to assume your loan and your current interest rate is higher than the current market rate, they will not want to assume your loan.

    Bookmark   July 26, 2012 at 6:55PM
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mgmsrk

Mortgage rates hit a 50 year low today, there is no better time to take out a new mortgage. Given that the rates are so low it�s unlikely anyone would want to assume your mortgage.

    Bookmark   July 26, 2012 at 8:29PM
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brickeyee

Watch out for folks trying to assume 'subject to' the existing mortgage.

It is not actually an assumption with the buyer qualifying with lender, the lender's permission being granted, etc.

You are still liable on the mortgage, and it shows on your credit report as a liability in many cases.

To assume an FHA loan the borrower has to apply, pay fees, and qualify.

With rates as low as they are it is very unlikely to be worth the effort.

    Bookmark   July 31, 2012 at 12:19PM
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Billl

If the alternative is a short sale, that would mean that the mortgage is for more than the property is worth. Why on earth would a buyer want to take on that debt?

    Bookmark   July 31, 2012 at 3:33PM
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kathyg_in_mi

We were the sellers in an assumption sale back in 1977. We sold to a young couple, our names stayed on the mortgage and if the buyers had defaulted on the mortgage we would get the property back. They gave us a substantial (at that time) down payment. It was a VA loan at 7%, we bought it in 1972.

    Bookmark   July 31, 2012 at 6:19PM
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brickeyee

"We sold to a young couple, our names stayed on the mortgage and if the buyers had defaulted on the mortgage we would get the property back."

Only if you found out before the actual lender foreclosed.

    Bookmark   August 1, 2012 at 4:39PM
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kathyg_in_mi

No, at that time we would have been notified that they were not paying and we would have gladly taken back the property. DH actually hoped they would do that and we could resell it.
We were sure that would not happen, because the wifes parents lived next door!

    Bookmark   August 2, 2012 at 10:22AM
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detcastle

Thanks for the comments. Our situation is a strange one. The interested party is currently renting the house after they were unable to complete the purchase more than a year ago. Their credit is now repaired and their income level is good (better than mine!). Of course the bank would need to approve them. We are somewhat underwater with the house, but not significantly so and I thought the bank might prefer this to a short sale. I know we would as we don't want to have to come up with the difference or pay taxes on the balance of a short sale. Agree that the buyers MIGHT be able to find a better rate but with stingy lending and appraisals being trashed due to foreclosures and short sales, I thought this might be a win-win in this crazy time.

I'll update if I decide to investigate further. thanks again.

    Bookmark   August 2, 2012 at 11:02AM
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brickeyee

"No, at that time we would have been notified that they were not paying and we would have gladly taken back the property."

By who?

The folks not paying?

The mortgage servicer likely told have sent the notice to the property address.

Very few lenders will tolerate a 'subject to' assumption if they become aware.

there are all sorts of shennanigans to avoid 'de on sae clauses' tat have been tried.

One is a 'wrap around' mortgage you would issue the buyer.
the buyer then pays you each month, and you pay the original mortgage and pocket o\your portion of the payment.

If the lender finds out they often enforce the 'due on sale' clause.

    Bookmark   August 2, 2012 at 1:55PM
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kirkhall

While it would be awesome for you to have your renters take over your mortgage (and save your heiny), if the house's appraisal would be low, there is absolutely NO reason the buyers should agree to this. They ought to go through the regular buying process and get it for cheap (read, market value). If their credit is now repaired and they have a good income, they can qualify however they want, assuming the house appraises. If it doesn't appraise, that isn't their problem; it is yours. In fact, if it doesn't appraise, then that is a very good situation for them--they don't have to pay as much.

    Bookmark   August 2, 2012 at 11:14PM
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