How to Take Over Mortgage Payments on a Property
Tara Mastroeni
Published: February 15, 2022 | Updated: August 01, 2023
Assumable Mortgage 101: How to Let Someone Take Over the Mortgage Payments on a Property
If you’ve ever asked the question, “Can’t someone else take over my house payments?, you’re in luck. There is a way to allow someone else to take over responsibility for a mortgage. In real estate, these loans are known as “assumable loans.”
Although they are not terribly common in this market, they are a potential option for sellers who want to avoid foreclosure and buyers who may not qualify for traditional financing. If you want to learn more about how to take over mortgage payments on a property, keep reading.
We’ll go over everything you need to know about this process, including the pros and cons, so that you have a much better idea of whether having someone take over the payments on your house is the right choice for you.
What is an assumable mortgage?
Put simply, an assumable mortgage is any home loan that allows a new borrower to take over an existing mortgage from the original borrower.
However, in general, It is easier to take over mortgages that are backed by government agencies like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). While a conventional loan will not typically be assumable, FHA loans, VA loans, and USDA loans often allow another borrower to take over responsibility for the mortgage payments on an existing loan.
How to allow someone else to take over mortgage payments in real estate
If you think having someone else become responsible for the loan on your home may be a good idea, it’s important to have a clear idea of what the process entails before you decide to move forward.
With that in mind, here is a closer look at the steps that you need to take to complete to allow someone else to take over your mortgage payments:
- Contact your lender for assumption information: No two home loans are the same, which is why It’s important to get in contact with your lender if you would like someone else to assume your mortgage. They will be able to provide you with more specifics about the process and what you need to do to move forward.
- Calculate your desired sale price: Even if you’re open to allowing someone to assume the mortgage on your current home, you will likely want to ask for the difference between the existing loan amount and the current value of your home as a sale price. Most buyers will be able to make up this amount in a down payment or by taking out a second mortgage on the property.
- Allow the new borrower to qualify with your lender: Typically, once you find a buyer for your home, they will have to qualify with your lender to borrow the amount of the original loan, meaning that your lender will check their credit score and debt-to-income ratio, among other personal finance factors. Assuming everything works out, your lender will then send over an assumption package for you to fill out at closing.
- Attend closing: At settlement, paperwork will be signed and closing costs will need to be paid. On your side of the transaction, the closing costs will likely include the commission fees for the real estate agents who were involved in the deal. However, on the buyer’s side, they may include a down payment and a funding fee if they’re assuming a VA loan. Typically, the buyer will experience a significant cost savings compared to if they took out a brand new loan.
The pros and cons of a buyer taking over a mortgage
Now that you know more about how assuming a mortgage works, the next step is to learn about the pros and cons of undertaking this process as the seller of the property. Read on below to learn more about if it could be the right choice for you.
Pros of a mortgage loan take over
- When interest rates are high, advertising an assumable loan may attract more buyers. One of the biggest benefits of an assumable mortgage is that it may give the seller the opportunity to advertise a below-market interest rate. For example, If the original loan has a rate of 3.5%, and rates are currently at 7%, allowing someone to assume your mortgage could help you attract more interested buyers.
- A mortgage assumption can also help with avoiding foreclosure. In this case, when someone assumes you’re deed, they become personally responsible for paying it off. If you are on the brink of foreclosure, allowing a buyer to assume your mortgage could be a way to put a stop to the process.
Cons of a mortgage loan take over
- Not all mortgages are assumable. Unfortunately, conventional loans often have a due on sale clause that prevents them from being assumable. If you have a conventional loan, you will likely not be able to go this route when selling your property to an interested buyer.
- Allowing someone to assume your home loan may use up your VA entitlement: Unfortunately, if you allow someone else to assume your mortgage, your VA entitlement will remain with the assumed loan. This means that you may not be able to use a VA loan program to buy a new home in the future.
The bottom line on someone taking over the mortgage payments on your property
Many homeowners often think to themselves, “Can I get someone to take over my mortgage?” especially if they happen to be underwater on the payments. Luckily, in some cases, it is possible to have someone assume responsibility for the loan on your home.
If you’re thinking of going this route, use the information above to help you make the best decision on how to move forward. While having someone take over the mortgage payments on their property may not be the right choice for everyone, for others, it can be a viable pathway toward financial freedom.
What loan types do you see assumable mortgages working for?
And what would be a best resource for finding these sellers? Direct Mail, RE broker, Craigslist:)?…
Thank you for your time!
Thank you for your question. There are many types of loans that may be assumable. As far as strategy, we would pay attention to the property types that are suffering in this environment. That may be commercial, due to lockdowns and/or residential due to the same reasons. You would want to pay attention to Notices of Default filings in public records to see who is about to get foreclosed on. I would then cross-reference that property address to see what the sale price was and what the starting loan balance was/is. That will tell you how much equity is in the property. Most borrowers in default will not just leave the equity on the table but those borrowers who are behind on payments and have little to no equity in the property may be the perfect candidate for this type of marketing. That is, assuming your goal is to control the property through the mortgage and then make you money of rental or airBNB. I am making a lot of assumptions here but the targeting is sound. Hope this helps.
Hi’, I was wondering is a wrap-around mortgage the same or similar to this? Still trying to understand real estate. Looking for a house, not apartments. Thank You for your time DeDe
Hi DeDe – thanks for dropping a comment/question. A wrap around mortgage is not the same as assuming an existing mortgage that has already been created. For lack of a better term, a wrap around mortgage is a 2nd lien mortgage that is usually created by a home owner that is trying to seller-finance the equity of their home to a new buyer. The main reason that most seller-carry sellers do this is because they owe a an underlying balance to a bank or lender. They do this to avoid triggering their “Due on Sale” clause with their lender or bank. I hope this helps.