What is Mortgage Assumption? Is it a Viable Option in my Divorce?
Some, but not all, mortgages can be assumed. Mortgage assumption is when one party essentially takes over a current/existing mortgage with the same terms from another party. This can be a great option to consider in a divorce if the mortgage that is currently in place is government-backed.
In order to assume an existing mortgage, the current borrower signs the balance of their loan over to another party. The party “assuming” that loan is then responsible for making the remaining payments. In general, conventional mortgages cannot be assumed. However, many government-backed loans may be. Some examples of these types of loans are FHA, USDA or VA. We often see VA (Veterans Affairs) loans in divorces involving military benefits. However, a non-military member can also assume a VA loan through a divorce proceeding.
Conventional mortgages offered by private lenders are often not assumable because they generally include a “due-on-sale” or “due-on-transfer” clause. These types of clauses mandate that the current mortgage be paid in full whenever the original borrower sells the residence. That’s why a re-finance would be possible in those specific situations, but not a mortgage assumption.
In order to effectuate assuming a mortgage, the person taking over the loan needs to compensate the old borrower for the amount he or she has paid. Additionally, a mortgage cannot be assumed without the lender approving the assumption. According to Bankrate.com, “an assumable mortgage allows a buyer to assume the rate, repayment period, current principal balance and other terms of the seller’s existing mortgage rather than obtain a brand-new loan.” This is an appealing option in the current housing/loan market because if someone were to re-finance an existing loan, rather than assume such loan, they would need to do so based at current rates. If the parties obtained their original mortgage when the rates were lower, then a mortgage assumption would allow for the new person responsible for the loan to maintain the same rates and terms that they had previously.
If your home has a government-backed loan in your partner’s name and you are getting a divorce, but want to keep the house, then you should look into mortgage assumption options. It could save you money in the long-run and make the process of transferring the property to you easier.
Our firm is here to help make things easier for you, so that you can take back control of your life. Ever argue with a woman? Let Wolf & Shore Law Group go to work for you and take the “big and bad” out of your family law matter so that it becomes a “Shore thing.” Please contact us today for a confidential consultation. Click here, call us at 203.745.315, or email us at info@wolfandshorelaw.com.
