How to Apply for a Loan Assumption

Learn About the Process, Requirements, and Costs

A mortgage loan assumption allows you to buy a home by taking over (or assuming) the owner’s mortgage instead of getting a new mortgage.

This has advantages for homebuyers and sellers. Homebuyers can get a mortgage with a lower interest rate than may be currently available on the market. Home sellers may be able to charge more for their home or enjoy other benefits by helping a buyer assume their mortgage.

You can often assume VA, FHA, and USDA loans. You may be able to assume Conventional loans under certain circumstances.

Keep in mind that loan assumptions usually include a release of liability. You’ll need to accept the interest rate, number of years left on the loan, mortgage insurance requirements, and other terms of the current mortgage.

How Does the Loan Assumption Process Work at Freedom Mortgage?

We can help you sell your home to a buyer who wants to assume your Freedom Mortgage home loan. To get started, we'll need your authorization to work with the buyer.

Please log in to your Freedom Mortgage online account, access and complete the authorization forms, then submit them to Freedom Mortgage. Here’s how to find the forms:

1. Log in to your Freedom Mortgage account.
2. Click the “?” mark to bring you to the Help Center page.
3. Click on “Forms.”
4. Access the Loan Assumption Request Form.
5. Access the Authorized Third-Party Form.
6. Complete the forms and upload them to the Secure Message Center within your Freedom Mortgage account.

If you are working with a Freedom Mortgage customer to purchase their home with a loan assumption, we'll need to receive the third-party authorization forms from our customer before we can work with you. Once we have received authorization, you can apply to assume the loan.

How Do You Apply for a Loan Assumption at Freedom Mortgage?

Applying for a loan assumption is similar to the process of applying for a new mortgage. You will need to complete an application, provide documents, meet our credit, income, and financial requirements, and pay closing costs to get your loan assumption approved. Learn more about mortgage applications.

What Documents Do You Need to Apply for a Loan Assumption?

When you apply for a loan assumption at Freedom Mortgage, you will need to provide a set of documents that include:

• W2 documents from the past two years
• 1040 documents from the past two years
• Asset statements from the past two months for checking, savings, 401Ks, and other assets
• Credit explanation letter
• Pay stubs from the past 30 days
• Divorce decree (if applicable)

Do You Need to Pay Closing Costs When You Assume a Loan?

You will need to pay closing costs when you assume a loan with Freedom Mortgage. These can include costs for the assumption fee, credit report, flood certification, title fees, and recording fees.

Can You Add Closing Costs to a Mortgage When You Assume a Loan?

You can’t add closing costs to the mortgage balance when you assume a loan. That’s because you can’t change the terms of the loan. If you are assuming a loan with a $250,000 principal balance, the balance must remain $250,000.

Do You Need to Make a Down Payment to Assume a Loan?

Yes. You typically need to make a down payment when you assume a loan. Furthermore, you may need to make a larger down payment when you assume a loan than when you apply for a new mortgage. That’s because you'll need to pay the seller the full value of their home’s equity.

For example, let’s say that you are buying a home for $350,000, and assuming a loan with a $250,000 principal balance. This means that you will need to make a $100,000 down payment in order to buy the home.

Some homebuyers are able to finance part of this payment. For example, it may be possible to make a $50,000 down payment in cash and get a home equity loan for the remaining $50,000.

Can Homebuyers Assume a Delinquent Mortgage?

In most cases, the existing loan must be brought out of delinquency, if applicable, before closing.

Does Assuming a Mortgage Include a Release of Liability?

Loan assumptions usually include a release of liability. This means that when a person assumes your mortgage, you are released from the legal responsibility of making the payments and cannot be held liable if the person who assumes your mortgage defaults on the loan.

Do Loan Assumptions Impact Your VA Loan Entitlement?

Any purchaser may qualify to assume a VA loan. However, the Veteran’s entitlement will be impacted if a non-Veteran assumes the loan.

If the assuming borrower is a Veteran with sufficient entitlement, the Veteran seller can request the Veteran purchaser to complete a Substitution of Entitlement to restore their entitlement. However, if the assuming borrower is not a Veteran or is a Veteran who does not have adequate entitlement to make the substitution, the Veteran seller’s entitlement will remain attached to the home until the loan is paid off.

How Do Loan Assumptions Work After Divorce?

Loan assumptions after a divorce or separation can be like the process for assumptions when you buy a home. The person assuming the loan may need to complete an application and meet credit, income, and financial requirements to be approved. The person assuming the loan typically needs to provide a final Divorce Decree, as well. The other person is typically released from liability to pay the loan.

How Do Loan Assumptions Work After Death?

When you inherit a house with a mortgage, you’ll need to establish that you are the legal owner of the home (this can be called the "successor in interest") and work with the lender to assume the mortgage. Documents you may need to provide include:

• A copy of the deceased borrower’s state-issued Death Certificate.
• A copy of Letters Testamentary or Letters of Administration from the Probate Court for the deceased borrower’s estate.
• Identification for the person appointed to manage the estate as Administrator, Executor, or Personal Representative.

Depending on state law and the circumstances of the deceased borrower’s estate, it may be necessary to probate the will or have a Personal Representative of the estate appointed before you can assume the loan.

Consult a lawyer for legal advice on the probate process and Personal Representatives of an estate. You typically want to work with a lawyer licensed in the state where the borrower died.

Keep in mind that you are not required to assume the mortgage of a house you inherit. You can choose to sell the home and use the proceeds to pay off the mortgage. You can also choose to continue paying the mortgage as a successor in interest or finance the home by applying for a new mortgage.

How Do You Assume a Loan with Freedom Mortgage?

If you are a current Freedom Mortgage customer, and would like a new borrower to assume your loan, you can get started by logging in to your Freedom Mortgage account and accessing the loan assumption request form.