Never Assume Anything…Except a Low Rate. Assume That.

Now that assumptions are becoming more and more popular, many news agencies are starting to report on them. The problem is that the information they are giving the public is seldom correct. Sure, they get parts right…but I haven’t seen a single article that got it all right. You can’t “assume” that even the largest of news agencies are reliable.

There are many reasons for this. Assumption loans are still the wild west when it comes to the rules. Many of the guidelines are a bit gray and lead to interpretation. Some lenders may interpret one way and others another. For example, FHA and VA allow servicers (a seller’s current mortgage company) to place some overlays to underwriting guidelines. The spirit of this is to maintain prudent underwriting – meaning not allowing a person to assume a loan that they may not be able to afford.

The problem with this is that some servicers use this ability to discourage assumptions altogether. (Servicers lose money when they process an assumption – but that’s a discussion for another time) Discouraging assumptions is not allowed. Period.

Some overlays that could be seen as acceptable may include: minimum credit scores, more stringent debt to income ratios and others. Some that are NOT acceptable might be: investors not allowed to assume a VA loan, can only be assumed by a relative, seller must be going through a financial hardship and any others that are designed to make assuming a loan nearly impossible.

In general, don’t take everything you read or hear at face value. Make sure to connect with an assumption expert to get reliable information.