- The Housing and Urban Development (HUD) Reform Act of 1989 requires that anyone assuming a mortgage must prove his creditworthiness. The creditworthiness requirement spans the life of the mortgage and is in addition to any state laws on assuming loans. In addition to proving creditworthiness, the person wanting to assume the loan has to allow the lender to review the assumption documents and give his approval. The person assuming also has to file a document releasing the previous debtor from responsibility for the loan.
- Mortgages, and some other loans, will have a clause in the contract indicating whether they are assumable. Generally, any Federal Housing Administration (FHA) loan can be assumed. Some Department of Veterans Affairs and private loans have restrictions on whether a loan can be assumed. For example, the Department of Veterans Affairs must give written approval of the assumption of any VA loan before it can be completed. There are also time constraints on VA loans that must be met. Having a real estate attorney assist with a VA loan assumption is a good idea.
- Other ways to assume a mortgage include installment contracts and plans, and rent to own or lease to own arrangements. With an installment plan, the seller keeps title to the property and continues to make payments to the lender until the property is paid off. The rules for these contracts vary by state. With rent to own and lease to own contracts, state law varies. However, nearly every jurisdiction requires that the seller acknowledge each rent or lease payment towards ownership of the home.
- Though not as often as mortgages, loans for cars and other personal property can be assumed. Generally, the lender must approve the assumption. State laws also require that the person assuming the loan provide a credit report. For car loans, the person who assumes the loan has to show proof of insurance before taking possession of the car.