How to Assume a Mortgage - YouTube

Hello and welcome back to our Freebie Friday video. Sade here.

Today's topic is going to be about how to assume a mortgage.

The most direct way to assume a mortgage

would be to get an approval from the lender and then go ahead and

take over the loan and step into the shoes of the original borrower.

However, since about 2005, most of the lenders do not allow their loans - the

mortgage loans, to be assumable and they will only allow assumptions under very

strict conditions. Typically only to nuclear family members. So immediate

family members like the spouse or the children. And so, most of the time you

will not be able to get permission to assume a mortgage because

assumption essentially is saying that you don't necessarily need to be qualified

on your own for the loan. You're stepping in and taking over the mortgage payments.

So most of the time when people want to do the assumption it's because they

cannot qualify to be able to buy that property outright because their credit

is not yet ready for that, or the income is not good enough to show - it's not big

enough to allow them to get approved.

So how then do you get around this kind of thing?

There are two ways in which you can get around that.

The first way is to go ahead and do an assumption anyway

without the lender's permission, and this

comes with a tiny little risk which is the risk that the lender would come and

disagree with that and object to that transfer, and then call all of that loan

immediately due. So they will accelerate the whole balance due.

So let's say the current borrower has been making

regular mortgage payments that are $2,000 a month

and you want to step in and take over

the loan and then continue paying $2,000 a month, that's it. But the total balance

due in the future - like currently and into the future, on that loan, is $200,000.

You are not ready to pay $200,000. You just want to be able to step into

the original borrower's shoes and make the monthly mortgage payments.

So when the lender sees that the original borrower

has transferred the interest to you

through an assumption, that lender has a right to ask for all of that money

immediately. The $200,000.

So that's what we call the Due Upon Sale clause that's inside the Deeds of Trust.

And even though they're in there and we do let people know that

that's a possibility, I've never ever seen a lender call that loan due

because of an assumption that was done without the lender's permission.

But there is that possibility out there so I have to warn you about that.

So you can still go ahead and do the assumption and you'll do that with an

Assumption Deed and also with a Promissory Note. The Promissory

Note is going to be for the amount of the loan if that's all the assumption is for.

Sometimes people actually would assume the loan and pay a little bit of a

higher price. So it's almost like buying the property but not being ready to

bring all of the money at once. So the original borrower is

doing the person a favor by having their name on the loan -the original borrower's

name on the loan for an extended period of time, and allowing this other person

to step in and just be making monthly mortgage payments until the total loan

is paid off. Sometimes you can structure it where you only allow the assumption

for a few years and then there's a balloon payment due at the end of the

5-year term or maybe even 2 to 3 years, for that person to get their

credit where it needs to be and get enough income to show and then they'll

have to purchase the property outright from you. So that's actually a good set up

because you don't really want your credit profile to be tied to the loan for too long

and trust that the other person will continue to make their mortgage payments.

So the Promissory Note will be for the total amount of the loan

if that's all that you agree to, or it could be for more.

If you're going to make some profit off of this deal, then of course the

Promissory Note is going to be for higher than the current loan balance and

there will be some language inside the Assumption Deed that allows you to step

in and foreclose. That means you can take the property back if that person fails

to make their monthly mortgage payments as agreed.

The other way that people can

do an assumption is through what we call a Wraparound Mortgage which is similar

to owner finance but you don't have the property free and clear

yet, so you have the first mortgage which is from that lender, and then you in turn

create another mortgage in the back of that, behind that, and that's the mortgage

that you give to this new person and that new person will start making

payments to you, so that you make the payments to the lender on that first mortgage.

And that sort of gives you a lot more control and it gives you more

transparency, and it allows you to be sure that the payments are being made

and your credit is not being ruined by this other person. So that might be a

good way to do it in some situations.

Even with the Assumption Deed you could

possibly arrange it where the payments go through a third party that verifies

that the payments are being made,

or that the payments go through you. And you have

to definitely keep great accounting records of all the payments if you're

going to be handling them yourself. Sometimes it's worth it to get a servicer,

a servicing company to take care of the payments from that third person to the

to the servicer, and then the servicer pays to the mortgage company.

And that just makes sure everything is on the up and up and there's a record of

everything and that the payments are actually being made.

So that's the overview on that and if you have any

questions that are more specific to your situation,

then I can answer those for you directly.

And let us know what other topics you'll like to hear

on this channel and I will cover those.

Thanks for watching and I'll talk to you next time.