Understanding Letters of Assumption in Real Estate: A Comprehensive Guide

When it comes to buying a home, you have a few options. For example, you can buy the home outright with cash you have on hand, or you can apply for a mortgage through a mortgage lender. You can also create an assumption of debt between yourself and the current homeowner. An assumption of debt will allow you to own the house but comes with certain rules.

Purpose

A letter of assumption is a written agreement between a current homeowner and a prospective buyer. The letter states that the buyer agrees to take over the homeowner's debt in the home in exchange for ownership. A letter of assumption must come with an agreement of assumption, and the buyer must agree to take over the mortgage payments. In return, the homeowner will give up ownership of the home.

Benefits

For a buyer, a letter of assumption is a good alternative if you cannot qualify for a traditional mortgage due to your credit score. Using this method may also be easier since you can simply transfer the debt from the homeowner to you. A letter of assumption also benefits the homeowner since he can sell his house and rid himself of any mortgage debt on the property.

Rules

Generally, a homeowner must receive approval from his mortgage lender before using a letter of assumption to sell his house. Once approved, the lender may require that you make a down payment or deposit to take over the mortgage. Typically, the terms of the mortgage will remain the same. However, the lender may make changes if the original terms contain serious errors.

Process

After you find a home you want to buy, both you and the homeowner must agree to use a letter of assumption. The homeowner must notify the lender. The lender may need to approve you as the new homeowner, which can require that the lender verify your income or credit score. Both you and the lender will need to sign all the required written documents. You may want to request that a lawyer review these documents before signing. After signing, you can take possession of the home.