The process of taking over a parent's mortgage is known as an assumption. When you assume a mortgage, the interest rate and other terms remain the same. You'll take over the payments and ownership is transferred to you. Your ability to assume the mortgage depends on several factors, such as the type of loan, the origin date of the loan, your credit history and whether your parent is alive or deceased.
The Due-on-Sale Clause
If you want to assume your parent's mortgage, you'll need to look over the loan documents to determine if that's a possibility. Look for a due-on-sale clause, which states that if the property is sold or transferred without the lender's consent, the lender can demand full payment of any outstanding balance. This clause prevents the majority of loans from being assumable.
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Conventional loans generally are not assumable. Only loans backed by the Federal Housing Administration and U.S. Department of Veterans Affairs loans may be assumed. Even then, you'll still need approval from the lender before you can legally take over the loan. If you have poor credit or an insufficient income, it may deny your request.
Exceptions for Inherited Homes
The Garn-St. Germain Act of 1982 specifies situations when a due-on-sale clause can't be enforced, even if the mortgage contains it. Under the act, if a relative inherits the home and intends to live in it, the due-on-sale clause can't be triggered when the title is changed. If you inherited your parent's home, you can keep the mortgage in your parent's name without making any changes, or you can assume the mortgage. You'll need to notify the lender of the death and likely will need to provide a copy of the death certificate.
The Assumption Process
Mortgages that originated before December 1989 for FHA loans -- or March 1988 for VA loans -- are fully assumable, which means you won't have to meet any requirements. Your parent simply will need to inform the lender that you want to start the assumption process. In some cases, it's as simple as submitting a signed form. For more recent loans, you'll need to prove you're creditworthy.
Lenders typically have an assumption packet for you to complete, with an application similar to what you would fill out for a refinance. You'll need to submit pay stubs and W-2 forms, bank statements, and an identity affidavit. You'll also have to consent to a credit check. Fees may apply, but are generally less than typical closing costs. For example, as of 2015, Bank of America fees for a mortgage assumption are between $562 to $1,062.