When considering any action it's wise to adhere to the edict, "don't assume anything." And that's good advice. For example, if you're going out on a date should you assume your date is going to pay for dinner and you leave your purse at home? Should you assume your plane is going to be on time? Should you assume anything at all? Certain assumptions carry little weight while others can have a lifelong impact. There are also assumptions in the mortgage world. Is a mortgage something that can be assumed?
Yes. Sort of. A mortgage assumption means a buyer can take over the mortgage by assuming it in its entirety. Instead of applying for a new mortgage a borrower can assume the existing mortgage on the property. There are mortgages out there that do allow for assumptions but there are very few of them. And for those that do allow the practice, there are restrictions on how the assumption can take place.
Historically there are two types of assumable mortgages: qualifying and non-qualifying. A qualifying mortgage is an assumable mortgage that can be transferred to a new party only if the assuming party can qualify based upon standard lending guidelines.
A non-qualifying assumable mortgage is a loan that can be transferred to any party without regard to credit or income. Non-qualifying assumable loans are associated with government backed mortgages such as VA and FHA loans. Up until the late 1980s anyone could assume a VA or FHA mortgage loan simply by completing the paperwork. Even if someone had bad credit and little or no income the loan could still be assumed and ownership transferred to the person assuming the loan.
Today however, while VA and FHA loans have assumption clauses buyers must qualify on their own using standard underwriting guidelines such as credit, income and assets. Buyers can assume a loan, document their ability to repay the debt and pay an assumption fee to the lender. Assumable mortgages can be a good deal, but remember that you still have to qualify the old-fashioned way.
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