Can a Mortgage be Transferred from a Seller to a New Buyer?

A loan assumption allows a buyer to take over the current owner’s mortgage while the loan’s terms – including the prepayment period, loan amount, and interest rate remain the same. 

The new owner must qualify for the assumption and be approve by the current lender. Using a seller’s low mortgage rate to market a home can be a great tool. However, there are some key details imperative to know upfront.

Is your loan assumable? Many loans are not assumable. To determine if your loan is assumable contact your loan servicer, or who your monthly payment is paid to. Here are some general guideline per loan type.

• Are assumable if originated after December 15, 1989. If the buyer is creditworthy, the lender must approve a sale by assumption and transfer responsibility to the buyer. Loans issued before that date may be assumable, but the lender isn’t required to release the seller from liability.
  • Under special circumstances (such as death and inheritance): The lender isn’t entitled to check the buyer’s creditworthiness in cases of death or inheritance, and doesn’t have to approve the sale.

• Are assumable if originated after March 1, 1988, with lender approval.
• Veteran’s and non-veterans can both assume a VA loan. However, if a non-veteran assumes the loan entitlement is not returned to the original Veteran. If you are considering this process, it is suggested to contact us upfront to determine how this effects future home loans. The cost associated with an assumption to a non-veteran are higher than those to a Veteran.

• Assumable in two ways:
  • With new rates and terms. Most USDA loans are assumable in this way, which transfers responsibility for the mortgage debt to the buyer at the same time as it adjusts the terms of the loan. When re-amortizing the debt with new rates and terms, the monthly payments and interest costs can change.
• With the same rates and terms. Available only in special circumstances, this type of assumption is usually reserved for family members who are exchanging ownership of a property. In these cases, the original mortgage’s rates and terms are preserved. Neither a review of the buyer’s creditworthiness nor an appraisal of the property is required.

Conventional loans are rarely assumable. Some ARMs/adjustable-rates mortgages are assumable.

• Property Equity –The assumption transfers the current loan. However, generally there is a difference between the current loan amount and the appraised value. This difference needs to be paid in the form of a down payment. With most seller’s equity position, this does change the assumption possibility for many sellers and buyers.
• Timeline – Most servicers take an extensive amount of time to process a loan assumption. Before opting to proceed with offering or marketing an assumption on a home, confirming the timeline and process to complete an assumption is recommended. Many servicers have been quoting 90 to 120 days.

Note an assumption is different than what is called a subject to purchase, which does not release the homeowner from their current mortgage. Reach out for more information regarding subject to financing, which is growing in popularity.

My Team and I are always available to answer any questions or assist in any way, so feel free to reach out!