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Define Assumption in Real Estate
Assumption:
"Assumption" in real estate is when someone takes over another person's mortgage, which means they agree to pay the remaining loan balance. This usually happens when a property is sold, and the new owner takes on the responsibility of the existing mortgage instead of getting a new one.
Example:
Imagine your neighbor sold their house to another family. Instead of the new family getting a brand new mortgage, they decide to assume your neighbor's existing mortgage. The new family will now make the mortgage payments, and your neighbor is free from that responsibility.
"A Deep Dive for Real Estate Agents and Appraisers"
Here are some additional things you should know about mortgage assumptions:
Lender Approval: An assumption isn't automatic. The lender (the company that gave the original loan) usually has to approve the buyer taking over the mortgage. They might check the buyer's credit history and income to make sure they're able to make the payments.
Loan Type: Not all types of mortgages can be assumed. For example, Federal Housing Administration (FHA) and Veterans Administration (VA) loans are often assumable, but conventional loans typically are not.
Potential Benefits: Assuming a mortgage can have benefits. If the original loan has a lower interest rate than what's currently available, it could save the buyer a lot of money over time. It can also save on closing costs.
Due-on-Sale Clause: Some mortgage contracts have a due-on-sale clause. This means that if the borrower sells the property, the entire loan balance becomes due. If such a clause exists, a loan assumption is usually not possible unless the lender waives the clause.
Responsibility for Payment: It's important to note that unless the lender releases the original borrower from the loan (a process known as novation), they may still be held responsible if the person assuming the loan fails to make payments.
As always, anyone considering a loan assumption should consult with a real estate professional or attorney to understand all the details and potential consequences.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
In real estate, my dear, a term you'll come to see,
Is "assumption," quite simply, like borrowing a key.
When one takes on a mortgage, from someone else, it's true,
They promise to make payments, just as the first did do.
So when you study real estate, and assumption you will find,
Remember it's a promise, to pay a loan reassigned.