Assumption clause

You need to understand what an assumption clause is. Here’s what to know.

What is an assumption clause?

An assumption clause is a provision in a mortgage contract that allows the homebuyer to take over the loan from the seller. It occurs when the homebuyer is assuming an existing mortgage from the current owner rather than applying for his or her own loan.

Deeper definition

Within a mortgage contract are specifications and requirements that outline the terms of the loan. When the buyer agrees to buy a home, he or she works with the lender to write the loan, adding certain terms and conditions.

In some mortgages, one component is the assumption clause. This allows the seller to transfer the mortgage to the buyer, who in turn avoids going through the sometimes lengthy loan process.

In this situation, many of the loan settlement costs are avoided by the buyer, and the seller does not have to worry about maintaining payments on the loan while waiting for the buyer to get a new mortgage approved.

Still, not all mortgages allow for assumptions. If allowed, many will require that anyone assuming the loan meets specific qualifications for approval by the mortgage banker.

Assumption clause example

Jake lists his home for sale. In his existing mortgage, Jake has an assumption clause. This allows for a buyer to assume the mortgage of his home, eliminating his financial obligation for it.

The buyer would be responsible for making all payments and would take over ownership and title at the time of the sale. As long as Jake’s lender approves his buyer, the homebuying process can go fast and be less costly.


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