How to Take Over Mortgage Payments: Understanding Assumable Loans

Whether it’s to buy a house with a lower interest rate or to purchase a property from a family member, more home shoppers today are asking: Can I take over mortgage payments?”

However, the concept of taking over mortgage payments on an existing home is often misunderstood. In this post, we will walk you through everything you need to know about transferring or “assuming” a home loan.

What does it mean to take over mortgage payments?

Taking over mortgage payments might initially seem like simply stepping in to pay someone else’s monthly loan bills. However, it’s often more than that. When you inquire about taking over a mortgage, you’re typically looking to do more than just cover the costs — you’re seeking to assume the existing home loan.

This means you want to transfer the property into your name, along with the current interest rate, payment terms, and mortgage balance. It’s not just about helping someone else pay off their loan; it’s about making their loan and the benefits of their homeownership yours.

What is an assumable mortgage?

An assumable mortgage is a type of home loan that allows a new buyer to take over the seller’s existing loan terms as part of the property purchase. Instead of obtaining a new mortgage, the buyer steps into the seller’s shoes, inheriting the same interest rate, remaining balance, and repayment period.

This process can be particularly attractive in a market where current interest rates are higher than those of the existing mortgage. By assuming the mortgage, the buyer benefits from the more favorable terms initially secured by the seller. Assuming a mortgage is also a compelling way to conveniently and affordably keep a home in the family.

What types of loans are assumable?

Not all mortgage types offer the option to take over the loan. Here’s a quick rundown of the common types of loans that are assumable:

FHA loans: Backed by the Federal Housing Administration, these loans are assumable. However, the person assuming the loan must meet the FHA’s lending criteria.
VA loans: Available to veterans and military service members, VA loans are also assumable. The new borrower must meet VA and lender requirements, but you don’t necessarily need to be a veteran to assume a VA loan.
USDA loans: These loans, aimed at rural homebuyers and backed by the U.S. Department of Agriculture, can be assumed. The assumer must qualify for USDA’s guidelines.

Most conventional loans are not assumable. This is because these loans often include a “due on sale” or “due on transfer” clause that requires that the remaining balance of the mortgage be paid in full if the home is sold or transferred. That said, there are some conventional loans with specific exceptions written into the loan agreement that allow for assumption. Exceptions to a “due on sale” clause can include:

Death of a spouse, another relative, or joint tenant
Transfers between family members
Divorce or separation agreements
Living trust arrangements

In addition, some adjustable-rate mortgages (ARMs) and even certain jumbo loans can be assumable. Ultimately, lender approval is key in any loan assumption, and each type of loan has its own set of rules and eligibility criteria.

How do I officially take over mortgage payments?

Taking over mortgage payments officially involves a series of steps to ensure the process is legally binding and compliant with lender requirements. Here’s what you can expect from the process:

1. Confirm the loan is assumable: Before anything else, verify that the current mortgage allows for assumption. This information is typically found in the loan agreement or by contacting the lender directly.

2. Get lender approval: Reach out to the existing lender to express your interest in assuming the loan. You’ll need to undergo a credit check and potentially meet other lender-specific requirements.

3. Review the loan terms: Carefully examine the existing loan terms, including interest rate, remaining balance, and repayment schedule. Make sure these terms are acceptable and financially feasible for you.

4. Negotiate with the seller: If the property is being sold, negotiate with the seller regarding any equity in the home. This often involves paying the seller the difference between the home’s sale price and the remaining mortgage balance.

5. Complete the assumption agreement: Fill out and sign the loan assumption agreement, which legally transfers the mortgage responsibility to you.

6. Pay assumption and closing fees: Be prepared to cover various fees associated with loan assumption and property transfer. These can include assumption fees, closing costs, and other administrative expenses.

7. Finalize the transfer: Once all paperwork is complete and fees are paid, the lender will finalize the transfer, making you the owner of the mortgage and the property. You can now officially take over the mortgage payments.