Assumptions. Good, Bad or What?
The term assumption refers to the transfer of
an existing mortgage loan from one home owner to another. Assumptions were
once a very common financing alternative. However, things have changed over
the years.
At one time most loans were assumable. In
particular, most government loans (FHA & VA) could be transferred
"without approval." The new owner (buyer) could "assume"
the existing loan without going through the rigors of loan approval - no
applications, no income verification, no credit check, etc.
These "no approval" assumptions were
very popular. Buyers with financial problems could become homeowners, provided
they had some cash for the equity. Sellers could usually get more money for
their property by letting their loan be
assumed. The same loan often got transferred several times this way.
But eventually the practice helped lead to foreclosure
problems and the bank failures of the late 1980's. So, in 1989 the rules were
changed. Loans written since that time cannot be assumed without the new owner
being approved. The result is that assumptions, if done at all, are much less
useful.
The good news is that various new mortgage
programs have pretty much taken the place of the assumable loan. There are
loans for almost every income and credit situation. Some programs even offer
100% or greater financing. In addition,
today's relatively low and stable interest rates have made things even easier.
A prospective home buyer's best mortgage
solution can be found by meeting with a reputable mortgage lender or broker.
The buyer should go over his financial situation with the lender and then
review the multitude of programs for one that fits his needs best. Good, bad
or otherwise, the old no-approval assumption is little more than ancient
history.
First Published 8/31/00 (1/12)
