Rules for Taking Over a Mortgage
Situations arise where a homeowner and another person want to switch places in a mortgage. In an attempt to make this transaction less complicated than a sale, someone may attempt to simply take over another individual's mortgage with the agreement of the homeowner. Learn the basics of this type of transaction.
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Taking Over a Mortgage
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Taking over a mortgage, also called mortgage assumption, is when a qualified mortgage applicant takes over the current mortgage account and payments of another borrower. In the ideal case the only thing that changes about the loan is the name on the account. If the current available mortgage rates exceed the rate that the homeowner has on his current loan, this type of arrangement is particularly beneficial to someone who wants to take over the loan. The decision on whether to approve a mortgage assumption lies with the lender.
Common Examples
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It isn't uncommon for a husband or wife to attempt to take over a mortgage if the other spouse has to leave or simply can no longer make payments. Another scenario, when a mortgage borrower may try to transfer the account, is if a child wants his parent to take over the mortgage. This type of transaction is very rare; but when it does happen, it is commonly between people who know or are related to each other.
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The Process
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If a mortgage company agrees to allow a new person to take over a current account, that person must prove he is just as, if not more, qualified to take on the current loan. That may include a thorough credit, income and asset check by the lender. The bank must allow its underwriting team time to review the risk of transferring to this new individual. The homeowner may also require the person who wants to assume the loan to make a down payment if the homeowner has equity (a value or profit) in the home.
Home Sale
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If a mortgage transfer is not allowed by the lender, the owner must go through the process of selling the house. Half of the task is complete since he already has a buyer. The seller can negotiate the selling price of the house so that it is just enough to cover the current mortgage balance to pay back the lender if he chooses. The mortgage rate, length and other terms may change, depending on the mortgage package offered by the lender.
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