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How to Buy a House by Assuming the Owner's Mortgage

by Alexander Harris

Assuming a mortgage is an alternative method for purchasing a home that has some advantages over buying a home using traditional means. For one, you will avoid the closing costs incurred when originating a new mortgage in your name. You also assume the same interest rate as the original buyer, which is beneficial if they are paying less than current rates. There are restrictions of course. Loans insured by the Federal Housing Authority are one of the only types of mortgages that are assumable; less common Veterans Affairs loans and United States Department of Agriculture loans are also assumable. For FHA loans originated after December 14, 1989 investors are barred from assuming loans so you must intend to be the primary owner-occupant. The lender must also verify your creditworthiness.

Purchase a Home Through Assumption

Locate a seller willing to transfer their property through assumption. Many sellers only consider assumption if they are in a bind and are unable to sell their home in the real estate market. Another possibility is that the seller is facing foreclosure and is unable to secure a modification. Assumptions usually make sense when conducted between family members, such as in a divorce or when an adult child takes over for an aging parent.

Agree on a purchase price. Most sellers will want to recoup all of the equity that they have put into the house over the years. If they have held the mortgage for many years, this will be a substantial sum. Of course, if the seller has only been in the house for two or three years the amount of equity would be less. Some sellers might be desperate enough to take less. Whatever the price, you will have to pay cash or obtain a separate loan in your name to pay them off with.

Submit to a creditworthiness review from the seller's mortgage lender. This is required for FHA mortgages originated on or after December 15, 1989. To obtain credit approval from the lender, fill out HUD form 92900, Mortgagor's Application for Credit Approval. This application and the necessary documentation is submitted to the lender along with the Request for Credit Approval of Substitute Mortgagor that is filled out by the seller.

Wait for approval. The lender is required to render a decision within 45 days. If approved, the seller will be issued an Approval of Purchaser and Release of Seller form which releases them of any liability. At that point, you are the new owner of the home and will begin assuming mortgage payments for the property.

Tip

  • Purchasing a home through assumption may not always be ideal. Be sure to compare the interest rate attached to the existing mortgage with current rates. In addition, you may have pay a considerable amount in cash if the current owner has built up a lot of equity in the home.

About the Author

Currently living in Austin, Texas, Alexander Harris is a business journalist covering the self storage industry for SpareFoot.com and SelfStorage.com. Harris previously wrote daily news for RichmondBizSense.com, a business journal in his hometown of Richmond, Va. His work has appeared in various other publications including "Philadelphia Citypaper," Stateline.org, "RVA Magazine" and the "Virginian-Pilot." Harris holds a mass communications degree from Virginia Commonwealth University.

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