When going through a divorce and breaking up your mortgage, a mortgage loan assumption might be an option that could help.
Q: I read your recent column in my local paper titled “Giving up interest does not free you from mortgage obligation.”
The ex-wife was willing to give up her claim on the home to her former spouse and receive a fixed payment once he refinanced. She chose to quitclaim the property to her former spouse, which, as you stated, did not release her from the mortgage obligation.
Here’s another way I solved the problem. When I divorced 2 years ago, I applied for a mortgage assumption with our lender. I had to fill out a packet of forms, submit past tax records, employment records, submit to a credit check, and pay $900 in processing fees. But ultimately I was able to retain the same loan with the same interest rate and same payment.
I paid out compensation to my ex-husband from other, non-house related concessions. The mortgage is now in my name only and will be paid off in its entirety in five more years. Please let others know that there is indeed another way to get a name off a loan.
A: We appreciate your letter and thank you for your comments on the loan assumption process.
While some homeowners might fall into your category, most borrowers’ loans are not assumable. While some investors holding those loans might be willing to go through the process of allowing the assumption, you basically reapplied for a loan and paid a fee to the lender.
You may have kept the loan and the loan may have had the same interest rate, but the real question is whether you would have been able to submit all of those same documents and obtain a loan on your own with better loan terms.
Some loans (like those backed by FHA) allow for a loan assumption and we would encourage a spouse to assume a loan only if the loan terms are equal or better to the loan terms that the homeowner would otherwise obtain in the market.
Unless a lender is willing to waive a fair number of conditions and has a lower standard for underwriting the loan, it would seem that an existing lender would agree to allow a borrower to assume a loan only if that borrower met its underwriting guidelines. If that borrower is unable to afford the loan, that lender would likely not allow the loan assumption.
And if the borrower is able to afford the loan, then the borrower should find the best loan product out there to suit that borrower’s needs, whether it is with the same lender or another company.
In your loan assumption, if your lender took in your information but did not truly re-underwrite the loan, we agree, your assumption options was a great option for you and for people that can get their lenders to agree to an assumption. But, most loans, other than FHA loans, do not have a provision that permits an assumption of the loan.