Loan Assumption and How it Works for Houston First Time Home Buyers
Design by Diana Walton- Houston First Time Home Buyer Specialist
Hello and welcome to Houston First Time Home Buyers Edition, formally First Home Houston (FHH), where we provide useful information to help Houston first time home buyers make the most informed decision when it comes to buying, decorating, and maintaining their first home.
If you are looking for a lower interest rate mortgage and a less stressful home buying process, you may want to consider assuming an existing mortgage loan. Here are 15 things you need to know plus your two options should you decide to take this road to home-ownership.
Loan assumption occurs when a home buyer assumes and agrees to pay a home seller’s existing mortgage.
All existing FHA, USDA, and VA loans are assumable.
You do not have to be a current or former military member to assume a VA loan.
You must go through the standard application process to assume a FHA loan.
Home seller does not need to obtain lender approval for any VA loan closed on or before March 1, 1988.
Most conventional mortgages are not assumable.
Seller must obtain lender approval for some assumable mortgage.
They are subject to credit approval.
An appraisal is usually not required.
Loans are assumable with no change in interest rates.
The assumption of an existing loan is substantially less expensive than obtaining a new loan.
You pay none of the typical charges associated with a new loan.
The original borrower on the loan may continue to be liable along with you.
The time to process a loan assumption may take 75-90 days
Seller is not automatically released from on-going liability for repayment. A release of liability is necessary to release the seller from repayment liability.
How Does Mortgage Assumption Work?
The two primary types of mortgage assumptions are simple assumption and novation assumption.
With a simple mortgage assumption, no lender is involved. It is typically a private transaction between the seller and the buyer. What makes it simple, well, the home buyer agrees to take over the mortgage payment without going through the underwriting process. In this option, the seller, not the buyer, remain responsible for the mortgage.
The most popular assumption option is novation. This option requires lender’s approval and going through the underwriting process. Please keep in mind, as the person assuming the loan, you must meet all the loan requirements.
Should you choose to take this path to home ownership, remember not to skip the home inspection. It is one thing to save money on loan fees. It is an entirely different thing to end up having to spend that money plus a lot more to fix household issues that an inspection could have detected. Begin the process by speaking with a trusted Realtor and loan officer before you agree to assume a loan.
As always, thank you so much for stopping by. Remember, if you are thinking of purchasing your first home, please contact us. We are here to help. We have been helping Houston first time home buyers since 2011 and we can help you. I hope you have an amazing day. Until next time...Diana
