CHAPTER 6

FORMAL ASSUMPTIONS

How to Assume a Home Loan

We are going to begin this section by discussing a few variations on the most commonly talked about no money down formulas; the assumption. 

There are two basis types,

the formal assumption and

the subject to assumption.

We will begin with the simplest and end with the most complex. Unfortunately, as with so many things, the method that is the simplest to implement is also the most difficult for which to find a suitable seller and property.  Conversely, the method which is the most complex, is the easiest to find an appropriate property.

Although, you will rarely run across a property that lends itself to this first method, they do occasionally pop up, so keep your eyes open!

For one reason or another, occasionally, a person wants or needs to sell a property right away.  Maybe they just lost their job and feel that foreclosure may be imminent, or possibly they have just been transferred and don't have the time necessary to get top dollar.  Regardless of the reason for selling, the procedure for a Formal Assumption is as follows:

Let's say the property has an $80,000 loan against it and the seller wants only $80,000 dollars.  You simply offer to take over the payments and formally assume the loan.  The actual procedure is really, pretty simple.  It is a matter of writing to the existing lender and asking for a "Assumption Package". 

You would have to formally assume the loan, just as if you were getting a brand new loan.  A loan application will be taken, credit report done, and a fee charged ranging from about $400 to $1000 or more.  The seller signs a grant deed conveying ownership of the property to you, you record the deed at the county recorders office and the property is yours for the cost of the assumption fee or if the seller wants to sell badly enough, you may even be able to get him to pay that.

If you have enough knowledge and experience, any real estate transaction can be handled safely without the assistance of an escrow or title company.  However, if you have any doubts at all, use the pros.  They can handle every aspect of the transaction including the drawing of all documents i.e. grant deed, assumption papers; plus provide title insurance, let you know if there any bonds or assessments against the property; and record any necessary documents.  You can expect the charge for these services to be in the neighborhood of $500 dollars.  If you are not familiar with the procedures, pay the $500.  If you do it yourself and make a mistake, it can cost you thousands!

What if your income, or credit is not such that the lender will allow you to assume the loan?.  Luckily, there are ways to get around and, in effect, assume loans even under these circumstances..  We will discuss exactly how that is done in another chapter on taking "subject to" and wrap around mortgages.