Question: I am interested in purchasing a home.....? I read that you can assume another persons mortgage loan through a bank. Does anyone know exactly how this works? Is it a good or bad idea to purchase your first home this way?

Answer: FHA loans are assumable and many adjustable rate loans are assumable.  The potential problem is that you have to cash out the owner's equity which means you have to pay them the difference between the loan balance and the sales price.  You also are charged an assumption fee, but it is not much, around $250- $500.  The person who told you you assumed the prior owner's payment history is wrong.  The lender puts the loan in your name and your payment history starts there.  When you assume a loan, you have to qualify just as if you were getting a loan.  This is so that the lender can release the prior owner from liability in case you default.  The potential benefit to an assumption would be if you could assume a loan at a low interest rate or assume an adjustable rate loan that you could convert to a fixed rate at a good rate of interest.  There are not as many assumptions these days because interest rates have been so low in the last 10 years that it made more sense for people to get a new loan than to assume one at a higher rate of interest.  In any case, you need to know what you can qualify for.  I have been both a mortgage banker and a mortgage broker and, based upon my experience, I would reccomend you call a mortgage banker to discuss your qualifying options.  Many mortgage brokers are fine loan officers, but you end up paying both the lender's fees and the broker's fees in many cases so it may be more cost effective to consult with a mortgage banker.  In addition, many mortgage banks have special comittments from the largest mortgage securitizers, Fannie Mae (FNMA) and Freddie Mac (FHMC) that allow them to offer special loans to first time buyers, those with limited funds availability, or credit challenges.  Good luck and happy hunting.  I hope you find the home of your dreams.
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