Ask Money

Assume a mortgage

Chris Farrell Jun 15, 2009

Question: I own a house in Tennessee. An investor offered to buy the house by keeping my mortgage in place in order to save him the cost of getting a new mortgage and to save me the loss of selling short. He said he would buy the house as is and would assume ownership of the house as well as responsibility for paying the mortgage that I already have. As I have never heard of this before, I want to know if this is a good opportunity for me to finally get rid of my house without loosing money or could this be a trap? Nick, Sterling, VA

Answer: I would be very wary. The investor described the idea right: Assuming your mortgage means the buyer takes over the existing payments instead of getting a new mortgage. But most lenders no longer allow for their mortgages to be assumed. It’s prohibited in the mortgage documents. So, I would look at your mortgage papers first to see if it’s possible. If it is an assumable mortgage, the lender will still insist (rightly) on running a credit check on the buyer.

Finally, what concerns me is that I don’t really understand the advantage to the buyer who will assume the mortgage. There are two real benefits to assuming a mortgage, a lower interest rate and cheaper closing costs. In your case the closing costs would be less. But the mortgage rate? Even though interest rates have crept up recently they remain remarkably low and, if you have good credit, there is plenty of mortgage money available from lenders.

The bottom line: Check this deal out very carefully, starting with your lender. It may not even be possible depending on your mortgage contract.

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