Will Having an Assumption Ruin My Credit?

Original Debtor's Liability

If you assume a mortgage, the seller is still liable for the loan, according to Mortgage Fit. Thus, if you default on the loan after you have assumed it, the seller must pay back the loan. If he does not do so, the lender will report him to the credit bureaus; your credit will not be affected, because the mortgage was not originally yours. However, the lender could still foreclose on the property, leaving you without a home.

Qualified Assumptions

If your seller offers you a qualified assumption, you must pass a credit check before you can assume the loan. The credit check's purpose is to ensure that you are likely to be able to take over the mortgage payments without a problem. If your credit is poor, you may not qualify for the assumption. Checking your credit should not harm it; however, every time a lender checks your credit, your credit score drops by approximately five points, to discourage people from applying for credit that they don't need or won't qualify for.

Advantages

If the seller's original mortgage features interest rates that are significantly below the current market's rates, you may wish to consider assuming his mortgage, as you will pay less overall for it. In addition, you may be paying the mortgage for a shorter amount of time, as the seller may have paid on it for several years before deciding to sell the house.

Considerations

If you assume a loan, you are stuck with the mortgage lender's original terms. For example, if you want an adjustable rate mortgage and the original seller has a fixed rate mortgage, you will not get the loan terms you want. In addition, you usually have to pay the seller's equity in the home before you can assume the mortgage, which is a larger down payment than you may have to pay if you apply for a new mortgage in your name.