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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.

How does the loan assumption process work?

Getting approved to assume a loan is similar to getting approved for a new mortgage. You will need to complete an application, provide documents, and meet the lender’s credit, income, and financial requirements to get the loan assumption approved.

Lenders often have stricter mortgage underwriting standards for loan assumptions than they do for new loans. This means that it can take longer to get an assumption approved compared to other mortgage applications.

You cannot change the terms of a loan with an assumption. You need to accept the interest rate, number of years left on the loan, mortgage insurance requirements, and other terms of the current mortgage.

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

Do you need to make a down payment with loan assumptions?

Yes. You typically need to make a down payment when you assume a loan. Further, 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 need to pay the seller the full value of their home’s equity.

For example, pretend you are buying a home for $350,000 and assuming a loan with a $250,000 principal balance. This means you will need to make a $100,000 down payment to buy the home.

Some homebuyers can 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.

Do you need to pay closing costs with loan assumptions?

Yes. You’ll likely pay closing costs when you assume a loan. Further, you will need to pay these closing costs in cash. 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.

What kinds of mortgage loans are assumable?

Government-backed mortgage loans (VA, FHA, and USDA) are generally assumable. Conventional loans can be assumable under certain circumstances. If you have a conventional loan, ask your lender if the loan it is assumable.

It is possible for homebuyers who are not Veterans or active duty military personnel to assume a VA loan. Allowing a buyer to assume your VA loan can affect your eligibility to apply for a new VA loan, however. Ask your lender how a VA loan assumption may affect your entitlement.

How do loan assumptions work after divorce or death?

The process for loan assumptions because of a divorce or separation may be similar to the process for assumptions when you are buying a home. The person assuming the loan needs to complete an application and meet the lender’s credit, income, and financial requirements to be approved. The person not assuming the loan is typically released from liability to pay the loan.

When you inherit a house with a mortgage, the process for assuming the loan can be simpler. You’ll need to establish you have become the legal owner of the home (this can be called the "successor in interest") and work with the lender to assume the mortgage.

Keep in mind 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 finance the home by applying for a new mortgage instead.

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. You can also request we mail you a copy of this form by calling our Customer Care team at 855-690-5900.

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