How to Assume a Mortgage

Assuming a mortgage (taking over someone else's mortgage) is an alternative to getting a new loan and can sometimes be the least expensive way to finance a property.

Find a property you would like to buy that has an assumable mortgage. This will take lots of footwork. Generally, an owner or agent will advertise that a property has a loan that is assumable. The only types of mortgages that are assumable are adjustable-rate and FHA mortgages.

Get a copy of the loan papers (note) from the seller to see exactly what the terms of the loan are. It is very important that you fully understand this documentation.

Contact the lender that currently holds the loan and ask for an assumption package. This package will contain all of the information required to assume the loan.

Review the requirements for loan assumption. Typically, the lender will require a minimum down payment, income documentation (tax returns, pay stubs), satisfactory credit and an assumption fee (which could be several hundred dollars).

Consider the difference between the loan amount you're assuming and the selling price of the property. The difference will have to be paid in cash or financed. Check with the lender about additional financing. (You may need to do a second mortgage at the same time to make up the difference.)

Provide the lender with the required documentation.

Compare the loan you want to assume with current interest rates and loans available. Make sure it is beneficial to assume the loan.

There may be a charge for the loan assumption package (typically, $25 to $50).

Depending on how long a seller has held the loan, there may have been a significant buildup of equity, thus creating a disparity between the loan amount and sales price.

Make sure you understand all of the terms of the loan you are assuming.

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