How Does the Loan Assumption Process Work and How Can I Benefit?
An assumable mortgage allows a qualified buyer to assume the remaining balance and terms of the seller’s current mortgage loan, including the rate, repayment period, current principal balance, and additional terms of the mortgage. We've put together the video below to walk you through more information on a loan assumption.
How does the Loan Assumption Process Work?
If the mortgage loan is assumable, a seller can sell their home to a qualified buyer, allowing the buyer to purchase the home by way of assuming responsibility for the seller’s loan terms and remaining balance. If the current value of the home is higher than the remaining principle balance (also known as home equity), the buyer will have to cover the difference at closing with cash or cash and a second mortgage loan depending on the maximum CLTV determined by the lender.
The buyer assuming a loan will need to go through the application and underwriting process to qualify with the mortgage lender. The mortgage lender will have to approve the full transfer of liability from the seller to the buyer, requiring that the buyer qualify. Qualifying would include, but is not limited to, credit and income requirements.
In cases of property transfer or inheritance where a sale is not initiated, the process for assumption of a mortgage may be simpler. If this is the case, please speak with our Loan Servicing Customer Contact Center at 800-561-4567 for options specific to your mortgage.
Which mortgages can be assumed?
Not all types of mortgages are assumable. FHA and VA mortgages can be assumed.
When assuming FHA mortgages specifically, Carrington may offer a simultaneous Closed End Second Trust Deed* to the qualifying buyer for an amount up to 80% of the difference between the assumable loan balance and the determined property value.
In the case of a VA loan being assumed, if the assuming qualified buyer is a non-veteran, the seller’s VA entitlement will remain tied to the assumed property and therefore cannot be used by the veteran to purchase another property until the assumed loan is paid in full.
How can you benefit from mortgage loan assumption?
If your mortgage is eligible for assumption, you may benefit from advertising the assumable option the mortgage carries.
For a qualified buyer, assuming a current mortgage could mean saving significant money in interest if the mortgage has a lower interest rate compared to current interest rates. Oftentimes there are fewer closing costs associated with mortgages that are assumed. In addition, under certain conditions the lender will not require an appraisal when a mortgage is assumed, saving the buyer additional money.
*The Closed End Second Trust Deed product is a second lien mortgage secured by your home. All loans are subject to credit, underwriting, and property approval guidelines. Minimum 680 FICO. Maximum 50% debt-to-income ratio, and CLTV up to 80% based on occupancy and FICO. Payments do not include taxes and property insurance. Please consult with your tax advisor regarding deductibility of interest on a home equity loan. Interest rates and program terms are subject to change without notice. Property insurance is required. Other restrictions may apply.
