When interest rates are high, assuming a seller's mortgage can be an attractive option. If the seller's interest rate is lower than current market rates, your payment will be lower than it would have been with a new loan. However, assuming someone else's mortgage affects your credit score. Depending on the circumstances, the assumption may either improve your credit or hurt it.
About Mortgage Assumption
When you assume a mortgage, you pick up where the seller left off. Your balance, interest rate and term will be the same as the seller's was when he made his last payment. The original lender must approve any mortgage assumptions, so you'll need to go through a standard mortgage application and approval procedure before you can take on the loan. This typically involves a credit check, verification of your income and a few closing costs.
To check your credit before the mortgage assumption, the lender pulls a copy of your credit report. This results in a hard inquiry, which is a notification to other lenders that someone has checked your credit recently. These notifications appear continue to appear for two years. Since hard inquiries indicate that you are searching for new accounts, they lower your credit score. Hard inquiries can affect your score for as long as they remain on your report, but their overall impact becomes less severe over time.
Like a standard mortgage, an assumed mortgage shows up on your credit report as a new account. Because every new account comes with a new payment you must make each month, adding an account always lowers your credit score. Adding the assumed mortgage to your account will also lower your average account age, which can hurt your credit score as well. However, new credit accounts make up only 10 percent of your score, so they won't bring you down too far.
The seller's mortgage payment history won't affect your credit rating, but after you assume the mortgage, you are legally responsible for making all of the payments when they are due. If you pay late or miss payments, your credit score will fall. However, if you make all of your payments by the due date, assuming the mortgage may actually raise your credit score over time.
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