Assuming Loans
REM # F627
By Ilyce R. Glink
Summary: Some loans are assumable and some are unassumable. Ilyce Glink provides personal finance advice to a reader who has a question about assuming loans.
Q: In March, 2003, my buddy and I bought a house together. In the next six months, he wants to move out and sell his share of the house. Fortunately, my fiancé wants to buy his share.
What I’d like to have happen is for the two of them to agree on a price and then she can assume his share of the mortgage. We have the amazing interest rate of 4.75 percent on our 30-year loan.
Is it possible for her to assume his share of the loan? My girlfriend has excellent credit and earns plenty of cash.
A: Unless you and your buddy bought a house with an FHA loan, your loan is generally unassumable. In other words, you can't just get your buddy's name off the loan and your fiancé's name on.
You have two choices: You can either refinance the mortgage (interest rates haven't really moved up all that much) and switch the names that way, or you can keep the mortgage as is, and you and your fiancé will simply make all the payments going forward.
However, if I were your buddy, I'd never deed over my share of the house to your fiancé while still keeping my name on the mortgage. That way, he'd have all of the liability and none of the ownership.
One other thing to think of: If you're going to purchase your buddy's share, that purchase may trigger the "due on sale" clause in your mortgage. That clause says that the mortgage must be paid off if the ownership of the property changes. I'm not sure a half-sale qualifies, but it might. For more details, talk to an attorney.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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