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LOAN ASSUMPTION

Our house is up for sale and the woman who wants to buy it would like to assume our mortgage. What are the disadvantages of a loan assumption? We don't want to do something that would hold us responsible for paying off the loan if the buyer failed to make the payments. - A resident of Salt Lake City.

According to a spokeswoman for Backman-Stewart Title Services in Salt Lake City, under a loan assumption you could be held liable for a deficit if the woman to whom you sold the house failed to make her payments and the lender sold the house (which was collateral for the loan) for less than the amount still owed on the mortgage.You could be held responsible for the difference unless the lender had released you as the guarantor and made the new buyer the guarantor.

Some lenders require the new buyer to qualify for the loan before a loan assumption can be made. Others do not.

There are instances when the risk of a loan assumption is small. If you had a large percentage equity in your home, chances are pretty good that the lender could recover the amount of money still owed.

That might not be the case if you still owe a lot on your house.

There are several reasons why a potential buyer might want to assume a loan.

Perhaps the interest rate is lower than the current market rate. Maybe the buyer doesn't have enough cash for a downpayment. Or maybe the buyer can't qualify for a loan.

Whatever the reason, the first thing for you to do is check with your lender.