Why Assume an existing mortgage?

Question

What is the upside in assuming an existing mortgage on a property? Most deals I see that advertise the ability to assume the existing mortgage seem to have higher interest rates compared to what is being offered now on new loans.

David M. · Answer

@Ethan Ross

Well, in a declining interest rate market assuming an existing mortgage probably isn't economical.  But, it can be helpful to assume a mortgage if you don't qualify for a mortgage...  Maybe you are going to flip the property and thus won't be holding on to it for long.  Saves you the cost and energy of getting a loan that you will most likely extinguish when you sell shortly.

Does that help?

Ron S. · Answer

No such thing anymore. yeah, technically, some VA loans are assumable and yeah, technically, some legitimate successor's in interest may be eligible for an assumption however under all scenarios, you must qualify as if you were taking out a new loan (There are very clear distinct extraordinary exceptions). No, you cannot just take over someone's loan. That's urban legend from days long gone.

The best you can hope for is a "Subject to", which is not an assumption, and is a violation of every note in existence that is not caught often but when it is, can be painful for the ones getting caught. An "AITD" is a subject to. A "Wraparound" is a subject to. No matter how you package it up, its a subject to. Doesn't matter if an attorney structures it for you. Doesn't matter if a title company does the deal for you. Doesn't matter if you have a legitimate subservicer handle the payments for you, if you are not on the loan, its a subject to and is not allowed the the noteholder.

Upside -

The person "Assuming" the loan gets a loan without qualifying and without paying for the cost of doing a loan.

• The person (not smart) letting someone "Assume" their loan, hopefully is doing it so they can get out of the payment obligation but, apparently isn't smart enough to realize (Or is but doesn't care) that they are on the hook still

Downside -

• The person assuming the loan can walk away any time they want with no liability, leaving a mess for the borrower
• The person assuming can never get information on the loan from the servicer/lender (Yes, we all know the seller can send the statements. We all know the "assumer" can lie and pretend they are the borrower with the servicer)
• The person assuming the loan can get the note called by the lender for the assumption and there is nothing the assumer can say or do about it
• The person letting their loan get assumed can have their credit destroyed if the assumer gets bored and quits paying

Ethan Ross · Answer

@David M.

Thanks David. Good for for thought.