Ask an RU: An Exploration of Home Loan Assumptions

When a borrower pursues the homebuying process, they may come across the opportunity to assume another borrower’s home loan. But how do you approach these assumptions during the underwriting process?

Our very own Robert Grolemund, Regional Underwriter, explains what an assumption is, why it may be an option for borrowers, and what Enact requires for the underwrite.

Home Loan Assumptions Defined

An assumption involves a borrower taking over, or assuming, an existing home loan. The terms and balance of the existing mortgage is conveyed to the assuming borrower(s), commonly requiring the assuming party to be qualified under current lender or MI provider guidelines.

When a current owner transfers over their mortgage to a buyer, the buyer assumes the previous owner’s remaining debt, thus avoiding having to obtain their own mortgage. For instance, if the previous owner’s interest rate is more appealing to the buyer, assuming an existing home loan might be a better option for them.

Why Home Loan Assumptions may be an Option

Assumable mortgages are often found to be an attractive option when prospective homeowners face a higher interest rate environment like the one we’re in now. In the past few years, we’ve seen a substantial increase in assumption volume. More borrowers are also opting to remain in their current mortgage when possible.

When there’s a death of a borrower/co-borrower, divorce, or property settlement, borrowers have a few options. They can facilitate a refinance at current market rates to buy out an owner’s interest or they can sell the property, split the proceeds, and find new housing. Additionally, if a borrower has the funds to pay off the other party’s interest (buyout agreement), the borrower can retain the terms of their current mortgage. This option is more frequently used in a higher rate environment and does not result in a change in MI pricing.

How we Review Home Loan Assumptions

There are a few ways to approach reviewing these instances during underwriting. Understanding each of the categories and how to best approach these reviews can help you more effectively navigate this process.

We review assumptions that fall into one of these three categories:

• Original Borrower will be released from liability (This is the most common scenario and includes assumptions involving release of all Original Borrowers).
• Original Borrower will not be released from liability.
• Original Borrower will be released from liability and the loan is delinquent.

Original Borrower to be Released from Liability:

(This includes release of all Original Borrowers)

In most cases, only one of the original borrowers is being removed from the mortgage. The assuming/remaining borrower must be qualified to ensure they alone can manage the mortgage obligation. We require a credit package for the assuming borrower and underwrite assumptions to our current guidelines. Loan packages submitted with an AUS approval will have the documentation relief as noted on the findings.

The following documentation is required. A new appraisal is not required.

• Enact Current MI Certificate
• 1008 and 1003
• Credit Report and any supporting documents
• Paystub(s) and W-2s for each borrower
• VOE
• 2 Months Bank Statements verifying sufficient funds to close or VOD
• Include any other supporting documentation that may be needed to make an underwriting decision
• Most recent 2 years 1040s if self-employed*
• Gift letter and proof of receipt*
• Assumption Purchase Agreement*
• Divorce Papers*
• Separation Agreement*
• Child Support Agreement*
• Lease Agreement*

* This documentation is only required if applicable.

If all original borrowers are deceased:

• Provide a copy of the death certificate or other evidence that borrower(s) are deceased, for example, an internet search of obituaries; and
• Provide a copy of the mortgage pay history for the subject property, if the assuming borrower has been making the payments. If mortgage pay history reflects no delinquencies, qualification of the assuming borrower is not required.

Enact may request additional documentation as deemed necessary for the Assumption Request decision.

Original Borrower will not be Released from Liability:

• The Assumption Request Form should reflect the borrower(s) to be added.
• A qualifying credit package is not required.

Original Borrower to be Released from Liability and Loan is Delinquent:

• Submit a qualifying credit package for the assuming borrower(s).
• Please note: Delinquent Assumption submission options differ from the above categories. Refer to the Assumption Request Form for details.

If you have any questions on how to handle assumptions, feel free to contact our Regional Underwriting Team or contact your Sales Representative today!

More Ways We Can Help

When working on home loan assumptions, your Enact MI team has got you covered. Our Regional Underwriting Team is available to assist you Monday-Friday 8am to 8pm ET at 800-444-5664 option 2.

Be sure to make the most of your MI experience, too. Please explore our many underwriting resources and underwriting tips for more information. Because going the extra mile comes easy for us, we also offer a comprehensive suite of training resources to help boost your industry experience.

Source:  Robert Grolemund is a Regional Underwriter for Enact.

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