Home Purchase ProcessAssuming a fixed rate mortgage loan is possible if you can meet some very stringent requirements. Loan assumption is a more compelling prospect if interest rates are rising and it would be harder to get equivalent terms any other way. An assumable mortgage just means that you can transfer the responsibility to repay the loan to a third party.

Any home loan is assumable in theory, but the lender will try every possible trick to resist it. Since the process of assumption is effectively a party process (buyer, seller, and lender) this can make it much more complicated. One of the central requirements to assume a home loan is that you meet all the lender’s requirements as the new borrower. However, the property most likely will not need to have a new appraisal.

The Due On Sale Clause

The way that lenders prevent you from assuming a loan is to include a due-on-sale clause in the terms of the loan; this means that if you sell the property, the loan becomes due at closing. Such clauses are valid for conventional loans, but FHA and USDA loans are assumable if they were created after March 1, 1988, and the buyer meets the acceptance of the lender.

VA loans were fully assumable if they closed before March 1, 1988, they did not require that the lender approved the transfer, since that date they have been assumable under the same terms as FHA and USDA.

Agreement Between Three Parties

It is rare that you will find a situation where you can take over a loan and not add cash at closing. In most cases, the property will have appreciated since the start of the loan, and you will have to bring cash to closing or take out a second loan to satisfy the seller.

An exception would be if the seller has negative equity, the reasons to not get involved with this are so numerous it would take several more posts to detail them all; that would be a bad investment even if the lender would agree to it.

Checking For Other Options

The note that describes the terms of the mortgage defines whether or not a loan is assumable, and lenders usually choose to include a due-on-sale clause. If there was seller financing involved in the property in question and it is not assumable, there might be another way. Instead of buying the property an alternative might be an option; the seller might consider giving you a lease option to buy.

Also, at the time of writing, interest rates on all home lending are low and new mortgages are likely to be relatively easy to obtain compared to gaining ascent from a lender to assume a loan. It might serve you well to investigate whether there are more appealing alternatives based on starting a new loan at closing.