Assumable Loans

• Most Federal Housing Administration (FHA) loans once were assumable, but many lenders in 2011 write non-assumable FHA loans. Most conventional mortgages are also non-assumable. When you apply for a loan, your lender approves the loan based upon your credit score, income level and the value of your home. To assume your loan, another borrower must meet your lender's eligibility guidelines. Your lender must review the buyer's financial information, but when you applied for the loan initially, your lender charged you fees for underwriting the loan. Typically, lenders cannot charge significant fees for loan assumptions, and, therefore, lenders can generate more fee income by not allowing people to assume loans.
  
  

Interest Rate

• Interest rates for mortgages roughly follow the yields paid on 10-year federal Treasury bonds, and those rates fluctuate on a daily basis. When mortgage rates are rising, a lender could miss out on the potential to make money from a new, higher interest rate loan if it allows a new home home buyer to assume an existing low-interest loan. Therefore, interest rate fluctuations are among the reasons many lenders do not allow people to assume loans.
  
  

Modifications

• Lenders do not allow you to modify your loan unless the modification benefits the lender. If you cannot afford to pay your mortgage but your mortgage debt exceeds your property value, your lender may view a modification as an inexpensive alternative to foreclosure. Your lender may modify your loan by writing off some of the principal you owe, extending the loan term or by reducing your interest rate. Your lender must file a mortgage modification with your local county courthouse, but a change in the interest rate or the principal owed does not directly impact the clause in your mortgage that makes the loan assumable.
  
  

Considerations

• While changes to your rate, term or principal do not make an assumable loan non-assumable, most loan modifications include special conditions. In most instances, modifications are made on a trial basis for a number of months or even a few years. If you make your payments on time during the trial period, the modification takes effect permanently. Generally, you cannot sell your home during the trial modification period. As a result, although your loan may technically remain assumable, selling your home may render the modification null and void.