Can You Buy Someone’s Mortgage from the Bank? Exploring Mortgage Assumption

How do I buy (assume) someone’s mortgage?

Assuming someone’s mortgage to buy their house involves a series of steps. Here’s a basic outline to guide you through the process:

1. Find an assumable mortgage: Your first step is to locate a home with an assumable mortgage. This can be done through real estate listings or by working with a real estate agent familiar with assumable mortgages. (More on this in our next section.)
2. Review the mortgage terms: Once you find a suitable property, review the existing mortgage terms. Understand the interest rate, remaining balance, repayment period, and any other relevant details.
3. Qualify with the lender: Just like with a traditional mortgage, you need to qualify for the assumable mortgage. This involves submitting an application to the lender, who will review your credit score, income, and other financial credentials.
4. Undergo the lender’s approval process: The lender will conduct an assessment to determine if you meet their criteria for assuming the mortgage. This process can vary in length and complexity, depending on the lender and the type of loan.
5. Agree on a purchase price with the seller: Negotiate and agree on a purchase price with the seller. If the agreed-upon price is higher than the remaining mortgage balance, you may need to secure additional financing or pay the difference in cash.
6. Pay required fees and closing costs: Be prepared to pay any assumption fees required by the lender, along with other closing costs. These fees can vary, so it’s important to get a clear understanding of these expenses upfront.
7. Sign the assumption agreement: Once approved by the lender, you’ll sign an assumption agreement, which legally transfers the mortgage from the seller to you. There are eligibility considerations for VA loans that sellers must keep in mind.
8. Complete the sale: After signing the assumption agreement, you’ll complete the sale, at which point you become the official homeowner and take over the remaining mortgage payments.

How can I find a home with an assumable mortgage?

Finding a home with an assumable mortgage can be a rewarding venture, though it may require a bit more research and patience. Here are some steps to guide your search:

• Talk to a real estate agent: A knowledgeable agent is a valuable resource in your hunt for an assumable mortgage. They have access to multiple listing services (MLS) and other databases that can pinpoint homes with assumable mortgages.
• Check online listings: Many real estate websites offer filters to narrow down search results to homes with assumable mortgages. Regularly checking these sites can help you identify potential properties. Try searching the keyword, “Assumable.”
• Explore mortgage assumption websites: There are specialized real estate platforms, like Roam, that focus on listing homes with low-interest-rate assumable mortgages. Additionally, some local websites specifically highlight assumable loan listings in their areas, such as these sites in Washington and Portland.
• Consult with assumption experts: Firms like Assumption Solutions and Take List specialize in assisting buyers, sellers, and agents with the loan assumption process. They can offer valuable guidance and support.
• Network with lenders: Reach out to banks and mortgage brokers. They might have insights about clients wanting to sell properties with assumable loans.
• Engage in social media and real estate forums: Online communities and real estate groups on platforms like Facebook can be great resources. Participate in discussions about available properties, including those with assumable mortgages.
• Leverage word of mouth: Don’t underestimate the power of your personal network. Inform friends, family, and colleagues that you’re searching for a property with an assumable mortgage. They might have leads or come across useful information.

Remember, while assumable mortgages offer distinct advantages, they are not as common as traditional mortgages. Patience and persistence are essential in your quest to find the right home with an assumable mortgage.

Pros and cons of assuming a mortgage

Assuming a mortgage can be an attractive option under certain circumstances, but it also comes with its own set of pros and cons. Understanding these will help you determine if this path is the right choice for your home-buying journey.

Pros

• Lower interest rates: Assuming a mortgage with a lower interest rate than the current market rates can lead to significant savings on interest payments.
• Reduced closing costs: Generally, assumable mortgages have lower closing costs compared to obtaining a new mortgage.
• Simpler approval process: In some cases, the process to assume a mortgage can be more straightforward and less stringent than applying for a new loan. But this can depend on the borrower, the property, and the loan terms.
• Faster closing: The entire process of assuming a mortgage can be quicker than that of a traditional mortgage application, potentially speeding up the home-buying process. For example, an appraisal may not be required when assuming a loan.

Cons

• Upfront cash requirements: If the sale price of the home exceeds the remaining balance of the mortgage, you will need enough cash to cover the difference.
• Qualification requirements: Despite the potential ease of the process, you still need to qualify with the lender, meeting their credit and income standards.
• Limited availability: Assumable mortgages are not as common as traditional mortgages, making it a challenge to find one in your desired location.
• Interest rate discrepancies: In a market where current interest rates are lower than the rate on the assumable mortgage, this option may not offer financial benefits. However, this is less likely to be a concern in a high-interest-rate market.

How do I qualify to take over someone’s mortgage?

Qualifying to take over someone’s mortgage involves meeting certain criteria set by the lender. “While finding the right property is an important first step, you’ll want to make sure that you are at least approved with the lender initially,” Broesamle says. “That’s pretty important.”

Here’s a brief overview of what you can expect in this process:

• Creditworthiness: Lenders will assess your credit score and history to ensure you’re a reliable borrower. A good credit score increases your chances of qualifying for the mortgage assumption.
• Income verification: You’ll need to provide proof of income to demonstrate that you can afford the mortgage payments. This usually involves submitting pay stubs, tax returns, and other financial documents.
• Debt-to-income ratio: Lenders will calculate your debt-to-income ratio (DTI) to ensure that you can comfortably manage the mortgage payments along with your other debts.
• Assumption agreement: If you meet the lender’s requirements, you’ll be asked to sign an assumption agreement. This legally transfers the mortgage responsibilities from the seller to you. VA loans often require additional VA eligibility and lender criteria.

What fees will I pay to take over a mortgage?

Taking over a mortgage involves certain costs, which vary depending on the lender and the specifics of the mortgage. Here’s a breakdown of the potential expenses:

• Assumption fee: This is a fee charged by the lender for processing the mortgage assumption. It varies but is typically a percentage of the remaining loan balance or a flat fee. For example, if you assume a VA loan, you will typically pay a 0.5% funding fee.
• Appraisal fees: Some lenders may require an appraisal of the property to ensure its value supports the loan amount. Appraisal fees can vary based on location and property type, but they typically range from $450 to $550.
• Credit report fee: You may be charged for the cost of pulling your credit report as part of the qualification process. Expect to pay usually around $30 to $50.
• Title transfer fees: These fees cover the cost of transferring the title from the seller to you and recording the new mortgage.
• Escrow and closing costs: Like a traditional mortgage, there can be escrow fees and other closing costs, though these are typically lower when assuming a loan.
• Difference in home value and loan balance: If the property’s sale price is higher than the mortgage loan balance, you’ll pay the difference, either in cash or through a separate loan.
• Legal and consulting fees: If you hire a real estate attorney or a consultant to assist with the mortgage assumption process, these will be additional costs.

Broesamle says that for some buyers, assuming a mortgage can be “an excellent tool for this market if you’re looking for a lower interest rate.” However, he reminds buyers that they will still need some cash to put down because most properties are typically worth more than the balance on the home loan.

It’s important to discuss these costs with your lender and real estate agent to get a clear understanding of the total financial commitment required to take over a mortgage.

Should I buy someone’s mortgage from the bank?

The answer to this question depends on your unique financial situation, housing market conditions, and personal goals.

Assuming a mortgage can offer considerable advantages, such as potentially lower interest rates, reduced closing costs, and a faster closing process. These benefits can make homeownership more accessible and affordable, especially in a market where current rates are high.

However, it’s important to weigh these pros against the cons, such as the upfront cash requirements, the need to qualify with the lender, the limited availability of assumable mortgages, and the potential complexities of the assumption process. There are also new products and programs entering the market to help walk buyers and sellers through the assumption process.

HomeLight recommends you consult with a financial advisor and a top real estate agent in your market to ensure this route fits with your home-buying and financial goals. With the right agent, the right home, and the right lending solution, taking over a mortgage can put you on the threshold of affordable homeownership.

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