I am interested in purchasing a home.....?

Question

I read that you can assume another persons mortgage loan through a bank. Does anyone know exactly how this works? Is it a good or bad idea to purchase your first home this way?

also would a down payment still be required? Montgomery County, MD.

Answer 1

FHA loans are assumable and many adjustable rate loans are assumable. The potential problem is that you have to cash out the owner's equity which means you have to pay them the difference between the loan balance and the sales price. You also are charged an assumption fee, but it is not much, around $250- $500. The person who told you you assumed the prior owner's payment history is wrong. The lender puts the loan in your name and your payment history starts there. When you assume a loan, you have to qualify just as if you were getting a loan. This is so that the lender can release the prior owner from liability in case you default. The potential benefit to an assumption would be if you could assume a loan at a low interest rate or assume an adjustable rate loan that you could convert to a fixed rate at a good rate of interest. There are not as many assumptions these days because interest rates have been so low in the last 10 years that it made more sense for people to get a new loan than to assume one at a higher rate of interest. In any case, you need to know what you can qualify for. I have been both a mortgage banker and a mortgage broker and, based upon my experience, I would reccomend you call a mortgage banker to discuss your qualifying options. Many mortgage brokers are fine loan officers, but you end up paying both the lender's fees and the broker's fees in many cases so it may be more cost effective to consult with a mortgage banker. In addition, many mortgage banks have special comittments from the largest mortgage securitizers, Fannie Mae (FNMA) and Freddie Mac (FHMC) that allow them to offer special loans to first time buyers, those with limited funds availability, or credit challenges. Good luck and happy hunting. I hope you find the home of your dreams.

Answer 2

That is a misconception. A mortgage between a bank and an individual is binding and cannot be transferred or assigned. It is a bad idea to attempt to acquire a home this way because your name will never be on the deed unless you are the purchaser on record. If you make an agreement with someone to take over or as you indicated 'assume' their mortgage it is not a binding agreement with the bank. If this is being encouraged by someone at a bank be careful! There are numerous scams out there, don't get duped. The safest and best way is to go to a legitimate real estate broker or go to a subdivision where the builder has an office with a sales representative. I am a homeowner for ten years now and about 20 months ago I sold my first home and bought a new house. The first time I went through a real estate broker and it was a good experience (the broker was a relative of my wife so we were not worried of being scammed). The second time we went to the builder's sales office and the experience was great too. The builder wants to make a sale so the sales representatives are usually straight-forward and customer focused. Beware of ARM (adjustable rate mortgages)! Many people get an ARM which offer below-market interest rates for about the first two years so the mortgage payments are low for that period. But, after that the rate can keep going up in subsequent years and you will make a much larger payment each month thereafter. A lot of foreclosures result from this because people cannot meet the higher payment requirements. If you have money for a down-payment then go that route and try to secure a fixed rate around 6-6.5 % for a thirty year loan term. If you don't have money for a down payment then save until you do and play it safe. PS if you have a 401K plan you are allowed to borrow a % to purchase a home. Remember if you take over someone's payment it is not a binding legal commitment so at some time in the future the person can evicet you and reclaim their house because their name is on the deed and all payments you have made cannot be recouped! Also remember never 'assume' .. when you assume you make a *** of two people you and me (just an old proverb).. ***...U....me. Be careful and make the right choice. Good luck on your house hunting! :)

Answer 3

Hopefully I can clear all this up for you:

Most of the time, loan assumption is NOT possible with loans written today. Lenders try to protect their interests by being able to approve a new buyer themselves, not to mention change interests rates and charge extra fees. Plus, the seller still remains liable if you default, unless they get a release from the lender.

All VA (Veterans Administration) loans are assumable and FHA loans made before December 1, 1986 are assumable without credit checks. After that date, credit checks are mandatory, but the qualifications are less stringent than with a convential loan.

So, in other words, you'd probably be better off just trying to get a loan yourself, especially considering the low interest rates today, unless you can find a home with an FHA loan from before 1986 with an even lower rate.

Bit of advice: Always consult an attorney before signing anything.

Answer 4

Yes, a person can do that. Sometimes they do it on foreclosures or tax sales. And sometimes people that are wanting to get rid of their home fairly bad will do that. It can be a good thing. Of course you will want to check what the interest rate is and all the terms of the mortgage carefully. But basically you are assuming the rest of the person's mortgage, meaning they've paid part of your bill. I'm not sure if there are any closing costs since you are basically assuming the remainder of the mortgage.

Answer 5

Typically the mortgage is not assumable. I have seen very few. If it is, it means you are only assuming the amount that is left (if you qualify) and you have to come up with the cash to cover the rest. If the remaining house mortgage is 60% of the purchase price that you purchase at, (which is not unlikely since the typical mortgage covers 80% to begin with and the house price appreciate), then you have to come up with cash that is equivalent of 40% of the purchase price. It is much more than what you'd need to come up with in a brand new mortgage. I would say just get your own financing.

Answer 6

Be careful. Assuming debt can mean a lot of up-front $$. If your goal is to get into a home with O down a good way is to find a lease/option. Simply talk to real estate companies or property managent cos. I am constructing a new home in FL and plan to offer a L/O. You still have to qualify after the lease term (say 2 years) but you will have locked in a price and paid you down payment along the way. Best of luck!

Answer 7

BAD IDEA! Banks want to lend money and know that you'll do your darn best to keep your house.Just go find a house and a Mortgage lender the rest should work out if it fall's within your reach.So GO FOR IT you have nothing to lose but a home to gain!Taking over for someone else is a pipe dream you have to have some what good credit but not great.Hope this helps.

Answer 8

If you assume another persons mortgage you assume all transactions that have taken place, i.e if they have been late, default, and also if they locked in on a higher interest rate than what is currently prime. My advice is to find a first home buyer loan, which typically is 100% financed at a lower rate than what prime is.

Answer 9

Not all mortgages are assumable. There are only a few around.
The benefit may be quite good depending on the terms. Assuming an "interest only" note is probably a VERY bad idea. Check with your banker once you find and assumable deal.

Answer 10

There are very few assumable mortgages out there. When you find one, you still have to qualify for it, very similar to getting your own loan. There must be some good advantages to assuming someone's loan for you to go that route.

Best bet - see a lender/broker and see what you qualify for (and what payments you're comfortable with) and go from there.

Best of luck!

Sean