When a home is sold in California or anywhere else in the United States, a buyer must usually get a new mortgage to pay for it. The seller will use the proceeds from the sale to pay off the mortgage he or she currently holds on the property. However, there are situations in which a mortgage can be transferred from one party to another.
While most loans have a “due on sale” clause attached to them, this is not true for USDA, FHA and VA loans. FHA loans closed before December 1989 and VA loans closed before March 1988 can be transferred without lender approval. All other loans can only be transferred if the lender agrees to it, which means that whoever assumes the loan would need to meet income and other criteria. One reason why it can be better to assume a loan as opposed to getting a new one is that a person can avoid closing costs.
In times of rising interest rates, assuming a loan may also allow a person to get a better rate than what is available on the open market. If someone does assume a loan, he or she will need to pay the current owner an amount equal to the equity in the home. This is the difference between what the home is worth and what is left on a mortgage.
There are many different loan products that may help a borrower purchase his or her preferred property. Down payment and credit requirements may vary by lender and the type of loan a person uses. Talking with a real estate agent, mortgage broker or attorney may help an individual learn more about different loan types and which one may be best for his or her needs and budget.