How Do You Qualify for an Assumption?
When properly executed, it offers a solution to remove your former spouse from liability in the property, allowing them to purchase another home if they wish. After your ex is removed from the loan, you are responsible for making all future payments.
You have the right to sell, refinance, or borrow money against the home without having to involve your ex-spouse after the assumption is complete, as well.
In this process, it is essential to ensure that the quitclaim deed and other mortgage documents are in the proper person’s name.
So, it is a good idea to have a real estate attorney look over the original mortgage documents, the assumption documents, and your divorce agreement to ensure that you do not run into any issues in the future.
One of the qualifications is the ability to carry the loan on your own, without assistance from your ex-spouse’s credit or income. But, if you are anticipating an award of spousal maintenance you should mention that to your lender.
Your lender may like specific language in your divorce decree regarding the award of spousal maintenance in order to use it to qualify.
If your debt to income ratio is high or your credit score is low, you may not qualify to assume your existing loan.
This is why it is essential to contact your mortgage lender, so you know what qualifications you need to meet. If this is an option you are exploring, it is important to get in touch with your lender early in the divorce. You do not want to find out late in the divorce process that you won’t qualify to keep the home on your own.
You will also need to provide documentation to obtain approval for your assumption. Below is a list of some of the information your lender will likely require:
- A copy of your divorce decree
- Paycheck stubs
- Bank statements
- Photo ID
- Proof of assets
- A copy of your credit report
Your lender may require additional documentation during the approval process, and you should provide everything they ask for promptly. Otherwise, the process can take longer to complete.
A Word of Caution on Mortgage Assumption
Assuming a mortgage loan is not always as straightforward as it seems. Not all loans allow for assumptions and if you can assume the loan, it might not remove the other party’s responsibility to pay back the loan if the loan goes into default.
This is why it is essential to discuss all possible mortgage options, outcomes, and consequences with your lender before signing any documents; not only to protect yourself with the transaction but to also ensure that the transaction meets the requirements of your divorce decree.
With a loan assumption, you should expect to pay some out-of-pocket expenses for legal documents, title insurance, payoffs, and any other items your lender requires to complete the process.
The requirements differ from lender to lender, so you will need to ask your mortgage holder what expenses you will be responsible for.
Not All Mortgages are Assumable Mortgages
Not every loan allows assumptions. USDA loans, FHA loans, and VA loans generally allow assumptions, while most conventional loans are not assumable.
However, each loan is different, and the only way for you to verify that you can assume your mortgage loan is to communicate with your lender.
VA Loans
Let’s say you’re a veteran and you have a VA loan for your family home. If your non-veteran, ex-spouse wants to assume your loan, you could lose your VA entitlement.
This means you will not be able to use your VA entitlement to purchase a new loan. Your entitlement may be tied to the loan until your spouse pays it off in full.