Buying a home can be an extremely stressful experience. This can be made worse when the other party in the deal is a family member. The last thing you want is some stretched-out, expensive purchasing process to share with a family member. Luckily, assuming your family member’s mortgage does make this go a little smoother. It can reduce the closing time by quite a bit, and eliminate traditional closing costs. There are some things you need to know going into it, so we will give you a basic idea of what the steps are. This is not legal advice, but rather a brief overview of the process to assume a mortgage from a family member.
Make Sure You Can Do it At All
There are two things that will stop you from performing a successful mortgage assumption: The loan type, and the lender.
FHA and VA loans are the easy ones here. If your loan is one of these, you can pretty easily transfer them between family members. They are all regulated in a similar way, and therefore have similar restrictions nationwide. The new owner won’t even have to go through an application process.
With other loans, though, you are in the lender’s hands. The first thing you will need to do is contact your lender and ask if they allow mortgage assumptions. Many will have blanket bans against these types of transfers, and others will have many conditions. These often rely on the creditworthiness of the new owner, and who ends up on the hook if payments are missed. That is often dictated by the type of assumption they allow.
2 Types of Loan Assumption
When it comes to assuming the loan, there are two ways to do it:
- Simple Assumption
- Novation Mortgage Assumption
A simple assumption is the most, well, simple. It pretty much just transfers the loan over but leaves the original owner on the hook. This one is nice because of how easy it is to get done, but the drawback is obvious. You typically don’t want to tie yourself into a debt you are giving to someone else. This becomes even more tricky with a family member.
On the other hand, a novation mortgage assumption. this one makes it so the new owner is the one on the hook, as would be the case in a traditional sales process. The downside lies in the other way it aligns itself with the regular process. The lender is more involved in a novation and gets to vet the new buyer. So, if you were going the assumption route because the buyer wouldn’t normally qualify, this is not the way to go.
So, to get this done is pretty simple (once you have confirmed you are able to do it at all). Just call your bank and figure out their specific process for getting these deals done.
For the most part, a down payment will still be involved. The new owner customarily pays the previous owner’s equity in a form of a cash down payment. This ensures everything goes as smoothly as possible, and nobody comes up short at the end of the deal.
Once you have the process down, just fill out the necessary paperwork, and make sure your family member qualifies. After that, it is time to enjoy your new home or your new lack of debt!
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Trey LaRocca is a freelance writer, financial sales worker, and tech guy. When he isn’t out and about or at work, he’s usually at home enjoying some video games and a beer. Currently residing in Newport Beach, this California Kid can be found at the beach on any given weekend. Trey has years of experience in day/swing trading, financial analytics, and sales.