Assuming a mortgage refers to the process of switching a home loan from one person to another. Sometimes the person assuming the mortgage is only interested in taking over the mortgage for someone that cannot make payments and may lose the house, such as a family member. At other times, assuming a mortgage is a way of purchasing a property without resorting to a new loan. Usually assuming a mortgage is a difficult process and may not be worthwhile for many borrowers or buyers.
Lenders may agree to a qualified assumption, in which the lender carefully considers the assumer's credit and income to see if he can pay off the loan easily. Very few lenders will agree to an assumption even then, since transferring the mortgage debt at all increases the potential for risk.
Assuming Mortgage When Buying
Buyers may want to assume a mortgage when looking to purchase a house. In this case, the buyer looks for a homeowner who is struggling to make mortgage payments and agrees to take over the mortgage with an additional cash payment for the equity in the home. From the buyer's perspective, this is intended to get a good price on a house and easy-to-pay mortgage terms. However, in a falling real estate market, better terms can often be found more easily simply by applying for a new mortgage and buying the house in the traditional method.
During a foreclosure, the house will be put up for auction in a judicial proceeding or sometimes by an escrow company, allowing borrowers to bid on the home for the amount of the foreclosed mortgage. This does not mean that the buyer assumes that mortgage, only that it is paid off. However, many foreclosures have second mortgages attached to the property. Often, by bidding on a property the buyer is agreeing to automatically assume this second mortgage when the house is won.
Cosigning can be a useful process for people who want to relieve mortgage debt for a friend or family member but cannot assume a mortgage. Cosigning puts two people on the mortgage contract so that the borrower with better credit can reduce the risk for the lender and make the loan possible. If the borrower that uses and pays the mortgage can no longer make payments, then the lender will turn to the cosigner for funds, another type of automatic assumption that can help out in emergencies.