Must an heir assume a mortgage loan?

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Maybelle Bailey asked a question: Must an heir assume a mortgage loan?
Asked By: Maybelle Bailey
Date created: Wed, Feb 24, 2021 1:12 PM
Date updated: Wed, Sep 28, 2022 7:58 PM

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Video answer: Chapter 26. exercises 6-9.

Chapter 26. exercises 6-9.

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Federal Law Helps Heirs Take Over the Mortgage

Many, if not most, loan contracts contain a "due-on-sale" provision. This clause states that if the property is transferred to a new owner, then the full loan balance can be accelerated, and the entire loan must be repaid.

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Can a Reverse Mortgage Be Assumed by an Heir to the Property?. Formally called 'home equity conversion mortgages' (HECMs), reverse mortgages are available to homeowners 62 years of age or older ...

Today’s interpretive rule explains that because an heir has already acquired the title to the home, adding the heir as a borrower on the mortgage does not trigger the Ability-to-Repay requirements. The rule does not require the creditor to determine the heir’s ability to repay the mortgage before formally recognizing the heir as the borrower.

Also, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule that helps an heir assume a deceased borrower's mortgage after inheriting a home. (In the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress established the CFPB and gave it the authority to adopt new rules to protect consumers in mortgage transactions.)

According to Nolo, the law provides that despite a due-on-sale clause in a mortgage, the lender must allow an inheriting relative to assume the loan in certain cases. This is not a simple law to...

An assumable mortgage allows another party to take over the remaining payments on a mortgage loan, while keeping the existing loan rate, repayment period, principal balance and other terms intact. The rights and obligations of the original loan are essentially ported from one borrower to another without a new mortgage being created.

In the cases of divorce or death, the spouse who remains in the home, or the heir, will need to prove they can make the monthly payments and meet the lender’s eligibility requirements before they can assume the mortgage.

Another option is to take over the loan and become responsible for the mortgage payments with the house deed and loan in your name. You can also make payments on the loan as it is currently. There is a rule with the Consumer Financial Protection Bureau that allows lenders to name an heir as the borrower without going through the normal loan approval process to ensure ability to repay the loan.

An assumable mortgage is a type of mortgage loan that can be transferred by a seller and “assumed” by the purchaser of the parcel of property to which the mortgage is attached. When such a situation occurs, the purchaser will become responsible for paying off the remaining balance of the mortgage loan.

How to qualify for mortgage assumption. Unless you’re assuming a loan from a relative, you generally must qualify for mortgage assumption — once the home seller confirms they have an assumable loan. Generally speaking, the buyer must meet the same credit and income requirementsapplicable to a brand-new loan.

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