The Real Estate Encyclopedia
Are Any Loans Assumable?
Category - Mortgage Questions - Mortgage Loans FAQ's
Most mortgage loans are not assumable.  FHA-insured and VA-guaranteed loans may be assumable loans.  For FHA-insured loans originated after December 1, 1986 and VA-guaranteed loans originated after March 1, 1988, the buyer must meet approval.  A third party can buy the property subject to the mortgage or assume the mortgage. 

Assuming the mortgage loan with “novation” (or substitution of one contract for another) means the seller is released from liability and the buyer is responsible for making the payments.  No lender is obligated to approve this method and no prudent lender will approve it without doing a thorough financial background check on the buyer or person assuming the loan.

Whether or not the buyer wants to assume a mortgage loan will almost always become known to the seller quickly because the purchase and sale agreement should specify how the buyer intends to pay for the property. This includes how much time the buyer is given to get a new loan commitment. If the buyer does not indicate a desire to assume an existing mortgage loan on the purchase and sale agreement, the seller should still keep track of the buyer's progress in obtaining financing, including getting a copy of the new loan commitment, so there are no unexpected surprises on closing date and also if financing fails, the seller can put the property back on the market quickly.

Almost all conventional mortgage loans made after 1980 are not assumable. Almost all FHA and VA mortgage loans prior to 1980 and most of them after 1980 are assumable. Since the rapid rise in interest rates that occurred around 1980, lenders have been reluctant to allow lower interest rate loans to continue in effect as property is sold. Preventing the assumption of such loans allowed lenders to write new mortgage loans at higher interest rates. If interest rates are high, lenders will often require a change to a higher interest rate as a condition of assuming a loan, although the buyer usually does not have to pay points or closing costs.

Mortgage Questions - Mortgage Loans FAQ's
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