mortgage assignment vs assumption

What Is Mortgage Assignment vs. Mortgage Assumption?

Mortgage assumption is now rare, while mortgage assignment is quite common.

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1. How to Invest in Property With No Money Down
2. What Does It Mean When a Mortgage Matures?
3. How to Assume a Promissory Note

Mortgage assignment, usually involving a mortgage lender, is very different from mortgage assumption, involving a homebuyer. Mortgage assignments occur when the original lender transfers the mortgage loan to a third party. Lenders who sell mortgages, which is most of them, assign their mortgages to others, who become the owners of the loans. Mortgage assumption occurs when a homebuyer assumes the home seller's existing loan, making all future payments. Buyers become the new mortgage borrowers.

Due on Sale Clauses

Most contemporary mortgages include due on sale clauses. This means that if a transfer of ownership occurs in the form of a home sale, the current mortgage must be paid off, as the balance becomes due. Due on sale language eliminates the option for a buyer to assume the mortgage on the home she's buying. Due on sale clauses have little effect on mortgage assignments to buyers or other third parties. Due on sale language helps make mortgage assignments easier, as the loan buyer knows the mortgage will be paid off when the property is sold.

Government Loans

While most mortgage loans are sold and assigned to others, few mortgages are assumable. Federal Housing Administration and Veterans Administration mortgages, commonly called government loans, are the only legally assumable home loans left in the mortgage market. Government loans also may be assigned to third party buyers, as other mortgage loans are. Assuming government loans is not automatic, as the homebuyers must qualify for these mortgages, meeting FHA and VA income and credit guidelines.

Third Parties

While most contemporary mortgage assignments involve lenders selling their loans, borrowers may assign their mortgages, if their loan note language permits, to third parties. Although this is technically a form of mortgage assumption, it differs from traditional legal assumption in that the original borrower who assigned the mortgage remains responsible for the loan balance if the assignee does not make scheduled monthly payments. While both mortgage assignment and assumption involve third parties, the position of mortgage loan buyers and mortgage assignees is legally different.

While rare, novation is more of a hybrid of mortgage assumption and mortgage assignment. When permitted, the mortgage loan is both assumed by and assigned to another borrower. However, the original borrower is no longer responsible for monthly payments or personally liable for the balance of the loan. Legally, novation equals a new obligation, but with the same terms, including interest rate, of the former mortgage loan. Few contemporary mortgage loan notes permit this form of assumption and assignment.

Significance

Until the 1970s, mortgage assumptions were common, while mortgage assignments were rare. After the federal government created mortgage companies Fannie Mae and Freddie Mac and after due on sale clauses became popular, the roles reversed. For the past four decades, few mortgage loans were assumable, while most mortgage loans were sold and assigned to third parties. The contemporary practices benefit lenders but do not help borrowers, particularly when interest rates rise. Lenders reduce their rate risk, shifting most of the risk to mortgage borrowers, since homebuyers cannot assume lower interest rate mortgage loans.

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How to invest in property with no money down, what does it mean when a mortgage matures, how to assume a promissory note, does it make a difference who is the buyer or co-buyer for financing, what is a subordinate clause in a mortgage, do mortgage borrowers have to be on the title deed, what is an assignment of trust deed, what is a loan maturity date for a mortgage, what is the difference between the deed of absolute sale and the deed of assignment, the disadvantages of owner-carried mortgages, refinance vs. restructure mortgage, warranty deed vs. deed of trust.

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What is mortgage assignment vs. mortgage assumption.

Life throws all kinds of curve balls. A major event like divorce or an unexpected health crisis can create money difficulties. If your finances have taken a hit, you might not qualify for a home loan. Traditional mortgage loans aren't the only path to home ownership, however. Mortgage assignments and assumptions can help buyers and sellers alike. With a little creative financing, you still might be able to buy -- or sell -- a house.

Assumption Loans

An assumption loan preserves the original mortgage terms while transferring the mortgage note from one person to another. The former owner won't be on the hook for the balance if the new owner defaults. Not all lenders allow assumption loans, but FHA and VA loans are assumable. Assumption can be a good choice in a divorce if the couple had a good interest rate and one spouse wants to retain favorable mortgage terms while releasing the other person from liability.

Due on Sale

Most private mortgages contain a due on sale clause, which allows the lender to demand the entire balance if the loan is sold or transferred. Federal law carves out some exceptions to this rule. Under the Garn-St. Germain Depository Institutions Act of 1982, lenders can't call a loan due in situations like divorce or a transfer to a widow after the death of the other spouse. Even if your loan has a due on sale clause, your bank might still allow a new buyer to assume your loan with the interest adjusted to current rates.

Mortgage Assignment

Mortgage assignments are often confused with another type of transaction called a subject-to agreement or a purchase subject to a mortgage. Simply put, a mortgage assignment occurs when one bank sells a loan to another. This happens relatively often, with investors selling off large groups of mortgages to be serviced by another lender. If your bank assigns your mortgage, it must notify you in writing and let you know where to send your payments.

Subject-to Agreements

If handled properly, a subject-to agreement can be an effective way to buy or sell a house. It is not without pitfalls, however, and should be used carefully. Typically, parties to a sale choose this arrangement when the buyer can't qualify for his own home loan. He takes over the seller's mortgage payments and the seller signs over the deed. If the lender isn't told and later discovers the transaction, it can enforce the due on sale clause. The buyer forfeits the money he has paid into the home, and the seller might be left owing the entire balance.

What Is a Release of Mortgage? →

Divorce & Mortgage Debts →

What Is a Successor in Interest on a Mortgage Deed? →

The Mortgage Professor: Are Mortgage Assumptions a Good Deal?
Womans Divorce: Understanding Your Divorce Mortgage Options
The Washington Post: When a Lender is Restricted From Calling a Mortgage Due
Cornell University Law School: 12 U.S.C. § 2605
International Law Office: Court Invalidates Foreclosures Based on Ineffective Mortgage Assignments
Manausa & Associates: Is a Mortgage Assignment Sale the Solution for Buyers With Bad Credit?

A.M. Hill has been a licensed attorney since 2004. Her practice areas include family law and divorce, probate and estate planning and bankruptcy. Hill holds a Juris Doctor from the Cleveland-Marshall College of Law.

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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney . Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage.

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers.

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change.

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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What Is Assignment of Mortgage: What You Need to Know

We will explore the idea of mortgage assignment in this thorough guide, going over its definition, steps involved, potential consequences, and more. So read on to learn more about this important facet of the real estate market, whether you’re a homeowner, a prospective buyer, or just inquisitive about mortgages.

What is Assignment of Mortgage?

The assignment of mortgage, often simply referred to as mortgage assignment , is a legal process that involves the transfer of a mortgage loan from one party to another. This transfer typically occurs between mortgage lenders or financial institutions and is a common practice within the mortgage industry.

The Key Parties Involved

Assignor: The person transferring the mortgage is known as the assignor. The initial lender or financial organization that gave the borrower the mortgage loan is often the assignor.
Assignee: The assignee is the party receiving the mortgage assignment. This could be another lender or financial institution that is buying the mortgage, often as part of a financial transaction.
Borrower: The borrower is the individual or entity that initially took out the mortgage loan to finance the purchase of a property.

Why is Assignment of Mortgage Necessary?

Assignment of mortgage occurs for various reasons, and it serves specific purposes for all parties involved.

1. Loan Portfolio Management

Mortgage assignment is a common practice used by lenders to better manage their loan portfolios. Lenders might raise funds to offer more loans or issue new mortgages by selling or transferring mortgage loans to other financial organizations. This procedure aids in keeping their portfolios risk-balanced and liquid.

2. Risk Mitigation

Lenders may also assign mortgages to mitigate risk. When they transfer a mortgage to another entity, they are essentially transferring the associated risk as well. This can be a strategic move to reduce their exposure to potential defaults or financial instability.

3. Secondary Mortgage Market

The secondary mortgage market plays a significant role in the assignment of mortgages. Many mortgages are bundled together into mortgage-backed securities (MBS) and sold to investors. Assignment of mortgages allows lenders to participate in this market, which provides additional funding for new mortgage loans.

The Assignment of Mortgage Process

The process of assigning a mortgage, or deciding to sell your mortgage , involves several steps and legal requirements. Here’s a breakdown of the typical process:

1. Agreement between Parties

The assignor (original lender) and assignee (new lender or investor) must enter into a formal agreement outlining the terms and conditions of the new mortgage assignment. This agreement includes details such as the transfer price, terms of the loan, and any specific warranties or representations.

2. Notice to the Borrower

Once the agreement is in place, the borrower is typically notified of the assignment. This notice informs them that the servicing of their mortgage, including collecting monthly mortgage payments, will now be handled by the assignee. The borrower is advised to send future payments to the assignee.

3. Recordation

In many jurisdictions, mortgage assignments must be recorded with the appropriate government office, such as the county recorder’s office. This recordation provides public notice of the transfer and ensures that the assignee has a legal claim on the property.

4. Continuation of Monthly Mortgage Payments

For the borrower, the most noticeable change is the address where monthly payments are sent. Instead of sending payment to the original lender, the borrower will send them to the assignee. It is crucial for borrowers to keep records of these changes to avoid any confusion or missed payments.

Implications of Mortgage Assignment for Borrowers

While the assignment of mortgage primarily involves lenders and investors, it can have implications for borrowers as well. Here are some important considerations for borrowers:

1. No Change in Loan Terms

Borrowers should be aware that the assignment of mortgage does not change the terms of their loan. The interest rate, monthly payments, and other loan terms remain the same. The only change is the entity to which payments are made.

2. Proper Record-Keeping

Borrowers must maintain accurate records of their mortgage payments and correspondence related to the assignment. This helps ensure that payments are correctly credited and can be vital in case of any disputes or issues.

3. Communication with the New Lender

If borrowers have questions or concerns about their mortgage after the assignment, they should reach out to the new lender or servicer. Open and clear communication can help address any issues that may arise during the transition.

4. Property Taxes and Insurance

Borrowers are still responsible for property taxes and homeowner’s insurance, even after the assignment of mortgage. These payments are typically not affected by the transfer of the loan.

The Role of Mortgage Servicers

Mortgage servicers play a crucial role in the assignment of mortgage process. This section will explore the responsibilities of mortgage servicers, their relationship with borrowers, and how they manage mortgage loans on behalf of investors or lenders.

Legal Requirements and Regulations

Assignment is subject to various legal mortgage requirements and regulations that vary by jurisdiction. Discussing these legal aspects will help readers understand the legal framework governing the assignment of mortgages in their region and how it impacts the process.

Impact on Credit and Credit Reporting

The assignment of mortgage can have implications for borrowers’ credit reports and scores. Explore how mortgage assignment can affect credit histories, reporting by credit bureaus, and what borrowers can do to protect their credit during and after the assignment.

Assignment of Mortgage vs. Assumption of Mortgage

Differentiating between assignment of mortgage and assumption of mortgage is important. This section will explain the key differences, where one party takes over the mortgage and liability, while the other party merely transfers the loan to a new lender.

Impact on Property Taxes and Insurance

Taxes and insurance are essential components of homeownership. Explain how the assignment of mortgage may affect property tax payments and the homeowner’s insurance policy, as these are often escrowed into the monthly mortgage payment.

Potential Challenges and Disputes

Discuss common challenges or disputes that can arise during or after the assignment of mortgage, such as miscommunication, incorrect payment processing, or disputes over ownership rights. Offer advice on how to handle and resolve these issues.

Foreclosure and Default Scenarios

In the unfortunate event of mortgage default, understanding how the assignment of mortgage affects foreclosure proceedings is crucial. Explain how the assignee handles foreclosures and what options are available to borrowers facing financial difficulties.

Future Trends and Innovations

Explore emerging trends and innovations in the mortgage industry related to the assignment of mortgages. This could include the use of blockchain technology, digital mortgages, or other advancements that may impact the process.

In the complex world of real estate and mortgage financing , the assignment of mortgage plays a pivotal role in the movement of funds and management of risk. It allows lenders to efficiently manage their portfolios, mitigate risk, and participate in the secondary mortgage market. For borrowers, understanding the process and implications of mortgage assignment is essential to ensure the smooth continuation of their monthly mortgage payments.

As you navigate the world of homeownership or consider entering it, remember that the assignment of mortgage is a routine occurrence designed to benefit all parties involved. By staying informed and maintaining open communication with your lender or servicer, you can ensure that your mortgage loan remains a manageable and secure financial commitment.

In summary, purchase of mortgage is a vital mechanism within the mortgage industry that facilitates the transfer of mortgage loans from one party to another. This process helps lenders manage their portfolios, mitigate risk, and participate in the secondary mortgage market.

For borrowers, it means a change in the entity collecting their monthly mortgage payments but typically does not alter the terms of the original loan. Keeping accurate records and staying informed about the transition are crucial steps to ensure a smooth experience for homeowners. So, whether you’re a homeowner, lender, or investor, understanding assignment of mortgage is key to navigating the real estate landscape effectively.

This article is for informational purposes only and does not constitute legal, tax, or accounting advice.

Written by Alan Noblitt

What Is The Difference Between Mortgage Assumption And Mortgage Assignment?

Anthony Guerriero, 7/5/22 11:48 AM

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Most people who buy a home need a loan to help pay for it, and the type of loan that you get can impact how much money you pay in total for your home. Two options are to get either a mortgage reassignment or mortgage assumption. While they might sound similar, these two loans are quite different, with mortgage reassignments being much more common now than mortgage assumptions. In fact, you might be surprised that mortgage assumptions even exist because they're so rare. While mortgage assumptions hold significant advantages over the more common mortgage reassignments, CEMA loans can simulate some of the benefits that are lost when you get a reassignment loan over a mortgage assumption, but you might have to make a decision between whether you value getting a lower interest rate or getting the benefits of a CEMA loan. Learn more about your options when buying a home in New York by learning the terms.

What Is a Mortgage Assumption?

You might not know that a mortgage assumption is even possible let alone that it used to be the more popular way of buying or selling a house. When there's a mortgage assumption, the buyer essentially takes over the loan from the seller, including all of the terms that the original borrower set up. This means that the buyer is essentially paying the bank the remaining amount for the seller, and the buyer keeps the interest rate. This is important to note because the buyer won't have to pay the interest on the original, whereas they would have to pay the interest on a new loan.

What Is a Mortgage Reassignment?

In contrast, a mortgage reassignment is when the buyer of a home takes on a new loan with its own terms from a bank. This option is much more common today, partly because the bank isn't usually excited to take on a mortgage assumption. Banks don't like this option for a couple of reasons, including that they don't collect the interest amount that's paid at the beginning of the loan, so there's little incentive for a bank to agree to a mortgage assumption. Another reason that banks prefer a mortgage reassignment over a mortgage assumption is that they only want to take on a new borrower who has the same or better likelihood of paying off the loan. The lender will assess whether or not this is true based on the buyer's credit history and other financial factors.

Benefits of Mortgage Assumptions for the Buyer

One of the biggest advantages that a mortgage assumption can hold for a buyer is the lesser amount of interest that you have to pay on the loan. Another benefit is that you get to cut out a lot of the mortgage recording taxes that you would normally pay on a brand new loan or a mortgage reassignment. When you get a mortgage assumption, you're only paying the mortgage recording taxes on the remainder of the loan.

How a CEMA can Help Condo and Townhouse Buyers

A CEMA (Consolidation Extension and Modification Agreement) can help people in New York who want to buy a townhouse or condo save a lot of money. This type of loan helps people who are financing a new purchase or getting a refinance on an existing home by working around the mortgage recording tax, which is a tax on the total loan amount. At a rate of 1.8% for loans under $500,000 and a rate of 1.925% for loans over $500,000, the mortgage recording tax can add on thousands of dollars that you have to pay. What makes the mortgage recording tax really expensive is that you essentially have to pay it twice if you refinance your home. But if you use a CEMA loan, you only pay the tax on the gap between the two mortgages.

Why Are Mortgage Assumptions and Mortgage Assignments Confused?

If you wonder why two terms that mean very different things are often confused, you're not alone. Because mortgage assumptions are so rare, people in the real estate industry have started to use the two terms interchangeably. The reason that they're so rare is that banknotes are currently being written to make mortgage assumptions unavailable in the event of a sale of the home. It's simple to understand because banks don't gain anything when there's a mortgage assumption. In fact, they lose out on the interest that a new loan would bring in, so in the last couple of decades, banks started writing loans so that mortgage assumptions aren't possible.

Getting a CEMA Can Take a While

Recently, because there have been so many homes being sold, getting a CEMA can take some time, and you could lose the original loan rate that you were hoping for when you wait to get a CEMA loan. Giving CEMA loans doesn't impact the bank's bottom line, but you'll have to wait longer right now because there also isn't any incentive for the bank to give these types of loans. In fact, they're more of a courtesy than anything else, so the banks don't work very hard to get them done quickly, especially when they're backlogged with other work. If you want a CEMA loan that could save you money on the taxes but you also want the lowest interest rate possible, you might find it tricky right now. Because interest rates are rising, you have to decide whether it's worth it to wait for the CEMA to go through so that you can avoid the extra mortgage recording taxes even though you might lose the lower available interest rate if it goes up quickly. If you're going to be buying or selling a house, explore your options so that you can get the best financial deal possible for yourself. There are plenty of homes for sale in NYC for the right buyer, but you have to do your homework to ensure that you don't miss out on a deal that could affect your finances for years to come.

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What is an assumable mortgage and how does it work? Pros and cons

What is an assumable mortgage loan.

An assumable mortgage is one that allows a new borrower to take over an existing loan from the current borrower. Typically, this entails a home buyer taking over the home seller’s mortgage.

The new borrower — the person ‘assuming’ the loan — is in exactly the same position as the person passing it on. They’ll have the same terms and conditions, the same mortgage rate, the same remaining repayment period, and the same mortgage balance.

In other words, it’s effectively swapping one borrower’s name on the mortgage agreement for another.

In this article (Skip to...)

How assumable mortgages work
Why assume a mortgage?
Pros and cons
Is a down payment required?
Two kinds of assumable loans
Types of mortgages that are assumable

Assumable mortgage process

How does an assumable mortgage work.

An assumable mortgage seems simple at face value: You take over an existing mortgage from someone else and its terms, interest rate, and loan amount stay the same.

That means your monthly payments are in the same amount as the original borrower, and if you pay the loan in full, you’ll finish paying off the home on the same date they would have.

In practice, though, assumable mortgages are a little more complex. They’re not exactly a free pass for someone who’s having trouble qualifying for a new loan.

There are three things buyers should know about how assumable mortgages work:

Not all types of mortgage loans are assumable. Conventional loans cannot be assumed, for example, but FHA and VA loans can
Not just anyone can assume an existing mortgage. You still have to apply with the lender and qualify for the loan
You generally need to make a down payment when assuming a mortgage, and it may be larger than expected

Remember, when you assume a mortgage you’re taking over the homeowner’s remaining loan balance. In most cases that won’t cover the full purchase price of the home, so you’ll still need a down payment to make up the difference.

In the right situation, there can be big benefits to taking on an assumable mortgage. But this strategy won’t work for everyone, so it’s important to understand the pros and cons before signing on.

Why use an assumable mortgage?

An assumable mortgage could be a great find in a rising interest rate environment.

One of the biggest benefits to this type of mortgage is that you could lock in a rate far below the current market, provided rates have risen since the original loan was made.

Take a look at one example.

According to Freddie Mac, the all-time low weekly mortgage rate occurred on Jan. 7, 2021, when it dipped to 2.65% for a 30-year fixed-rate mortgage.

But, just two months later, rates had risen above 3%. And some expect these rates to top 4% or higher over time.

Now imagine it’s a few years later, and Freddie Mac’s weekly average is 4.6% for a 30-year mortgage. If you’re offered an assumable mortgage at 2.6%, you’d likely be over the moon.

According to our mortgage calculator (which you can use to model your own scenario), monthly principal and interest payments at 4.65% would be $1,025 on a $200,000 loan. But they’d be $800 at 2.6%.

That’s a saving of $225 per month or $2,700 per year — every year.

That’s the fantastic advantage assumable mortgages can offer. But few scenarios will play out exactly like this. So we also need to look at the restrictions and downsides of assumable home loans.

Assumable mortgage pros and cons

Clearly, an assumable mortgage makes little sense when mortgage rates are falling. There’s no advantage in taking over an existing loan when its rate is higher than one you can get by making a new application.

That’s why there’s very little awareness of this option: nobody has wanted an assumable loan during the many years that rates have been falling. But rates are starting to swing back upward. So there’s a chance assumable mortgages could look more attractive in the coming months and years.

Assumable mortgage pros

For a home buyer, the upsides of assuming a mortgage loan include:

Low interest rates — Assuming rates are rising, you could lock in an older, lower interest rate
Capped closing costs — The FHA, VA, and USDA impose limits on closing costs when a mortgage is assumed. And you probably won’t need a new home appraisal
Long-term savings — You’ll likely save on interest because you’re borrowing less over a shorter time than with a new mortgage

Those pros may not be numerous. But they’re powerful.

Assumable mortgage cons

Again for buyers, the downsides tend to be:

A higher down payment — You may need a bigger down payment than the typical minimums allowed
Mortgage insurance — For FHA and USDA loans, you inherit mortgage insurance premiums, which are always required on these types of mortgages. VA loans do not have continuing mortgage insurance
Limited loan options — Not all types of mortgage loans are assumable. For borrowers with great credit and big down payments, it might make more sense to take out a new conventional loan rather than assuming an existing government-backed loan

That higher down payment could be a big drawback of assuming a mortgage. But when does it apply?

The down payment requirement will depend on the unique circumstances of the loan you’re assuming.

Do I need a down payment when assuming a mortgage?

When you assume a mortgage, you take over the homeowner’s remaining principal balance.

The current borrower has likely paid off a chunk of their mortgage. The home may have also increased in value since it was purchased. So there will be a ‘difference’ between the loan amount you assume and the purchase price.

That difference is your down payment. And it may be higher than the down payment you’d have to make on a new loan.

Let’s go back to the example we used above: Say the seller got a $200,000 mortgage at 2.6% in January 2021.

Imagine it’s now January 2023, and you want to assume that mortgage.

Well, the original borrower made a 3.5% FHA down payment of $7,500 on a $207,500 home. And home price inflation means the market value is now, perhaps, $220,000.

Working out your down payment amount

Because the homeowner made all their monthly payments over the past two years, they reduced the mortgage balance to around $190,900.

Imagine you’re buying the house at its exact market value: $220,000.

You’re paying $220,000
But your assumed mortgage is only $190,900
You need a down payment of $29,100
That's a 13% down payment

If you’re assuming a VA or FHA loan, the minimum down payment is 0% or 3.5%, respectively. So you’re putting a lot more money down than you’d need to on a new mortgage.

But, you’re also securing a far lower interest rate than you’d likely get otherwise.

If you don’t have that much for your down payment, should you pass on this sweet deal? Or should you try to bridge the difference?

Using a home equity loan to fund your down payment

One option for home buyers is to use a home equity loan to supplement the down payment on an assumable mortgage.

This involves taking out a second mortgage at the same time you assume the primary mortgage. Moving forward, you’ll have two separate mortgage payments until the home equity loan is paid off.

FHA, VA, and USDA loans allow second mortgages to purchase property — a.k.a subordinate financing. But there’s no guarantee. These agencies can reject a second mortgage if they don’t like the terms. Fully disclose to the relevant agency that you will be obtaining subordinate financing, and submit any related documentation.

Is the second mortgage strategy worth it? It’s a question of running the numbers.

You know how much you’re going to save through lower interest (around $2,700 per year in our example). And you can find out how much you’ll pay for a home equity loan.

If your home equity loan costs are lower than your overall savings, this strategy might make sense for you.

Note, however, that your second mortgage will likely come from a different lender than the one that owns the mortgage you’re assuming. So you have to work with the current mortgage lender and make sure it’s willing to play ball.

You’ll also likely need a credit score of 680 or higher to qualify for a home equity loan.

Two kinds of assumable mortgages

There are two types of assumable mortgages.

Simple assumption

The first is a ‘simple assumption.’ This means the buyer takes over making payments on the mortgage without involving the lender.

Anyone can do a simple assumption through a purely private arrangement. But these agreements are risky.

The trouble with a simple assumption is that the original borrower retains complete liability for the mortgage.

If the buyer falls behind with payments or otherwise breaches the mortgage agreement, it’s the seller whose credit and bank balance will suffer. And if the lender finds out, it might demand that the mortgage balance is paid in full right away.

Simple assumptions are exceedingly rare except sometimes for family transactions. You may be willing to accept the risk if the person taking on the mortgage is, say, your spouse, son, or daughter. But in most situations, a simple assumption is too risky to make sense.

Most assumable mortgages are ‘novations.’ These require the consent of the mortgage lender, so the buyer will go through the same underwriting process as any other new borrower — complete with a credit evaluation and financial documentation.

The good news is, with a novation, the original borrower walks away free and clear. Whatever happens to the loan after the transaction is complete is purely between the lender and the new borrower.

Which mortgage loan types are assumable?

Government-backed mortgages are generally assumable. That means an assumable loan will typically be one of three types:

FHA assumable mortgage — Backed by the Federal Housing Administration
VA assumable mortgage — Backed by the Department of Veterans Affairs
USDA assumable mortgage — Backed by the U.S. Department of Agriculture

If you want to assume any of these loans, you have to be eligible.

FHA loans are the most flexible. Credit score requirements start at just 580 FICO, and you don’t need a perfect credit history to qualify.

USDA loans are geographically restricted, but you won’t have to worry about that since the existing loan was already found to be USDA-eligible. However, the new borrower must meet regional income limits.

VA loans are a little more restrictive. You must be a veteran, active-duty service member, or surviving spouse to qualify. The lender will check your status by requesting a Certificate of Eligibility (COE) from the VA.

Conventional loans are not assumable

Unfortunately, nearly all mortgage agreements for conventional loans (those not backed by the government) contain a “due on sale” provision. As the name implies, the full mortgage balance falls due when the home is sold. So conventional and conforming loans are generally not assumable.

Fannie Mae does offer an exception. But only for adjustable-rate mortgages (ARMs). And, except in some weird circumstances, that defeats the object of assuming a mortgage.

What might those ‘weird circumstances’ be? Well, it might just be possible for mortgage rates to rocket so high that the caps limiting rate rises on ARMs make assumption attractive.

And there’s another exception in the form of ‘non-qualifying assumable mortgages.’ These are loans that existed prior to December 14, 1989, which is over 30 years ago. Given that most mortgages last only 30 years at most, you’re unlikely to find one of these.

If rates are rising — and you happen to find a home seller with an assumable mortgage — this option might look attractive. In this case, the process is fairly straightforward.

You don’t get to shop around for the best mortgage rate because that rate is already set. You wouldn’t want the existing rate if you weren’t happy with it.

But, besides that, the process is very similar to applying for any other mortgage. You’ll fill out a loan application and provide supporting documents like:

Income and employment information
Previous 2 years tax returns
Recent paystubs
Recent bank statements
Proof of other assets, like retirement and investment accounts

The mortgage underwriter will also pull your credit report and credit score to make sure you meet minimum credit requirements for the loan type being assumed.

Finally, you’ll have to show you can afford the down payment and closing costs — whether using money in your bank account, a second mortgage, or another source of funds like down payment assistance .

Assumable mortgage FAQ

The same way you qualify for any other mortgage. You’ll need to apply and get approved for the mortgage by meeting the lender’s requirements for credit, debt-to-income ratio, down payment, income, and assets.

You’ll have to pay closing costs on a loan assumption, which are typically 2-5% of the loan amount. But some of those may be capped. And you’re unlikely to need a new appraisal. So you may pay less on closing than a ‘typical’ home purchase — but only a bit less.

Usually. And it’s often more than with a new mortgage, because you’ll probably be covering some or all of the present owner’s past payments. But you might not need one if you’re assuming a recent VA or USDA loan because the lender doesn’t require a down payment. So it comes down to your negotiations with the owner.

Yes. Assumable mortgage closing costs are close to those for a traditional mortgage, though you may save a few hundred dollars or more by skipping a home appraisal.

Certainly. Anyone can assume your mortgage with the lender’s consent. But you may be inquiring about a “simple assumption,” where the lender knows nothing about it. Some borrowers do come to these private arrangements, but they’re loaded with risk — so read the relevant section above. Lenders often have special assumption arrangements for surviving family members if a borrower dies.

Yes. But the same cautions apply if you’re hoping to do a ‘simple assumption’ (see the previous FAQ).

A ‘non-qualifying assumable mortgage’ is one that was originated prior to December 14, 1989. Since most mortgages have a loan term of 30 years or less, non-qualifying assumable mortgages are more or less extinct.

It certainly can be. But, like all similar questions, the answer will depend on your circumstances and needs. If you get the chance to assume a mortgage at an appreciably lower rate than you can get elsewhere, you should definitely run the numbers.

What are today’s mortgage rates?

An assumable mortgage is most attractive in a rising rate environment.

While today’s rates seem likely to rise at least a little, they’re still near historic lows.

That means there are great deals to be had without searching for an assumable mortgage or making a big down payment.

And, when you take out a new loan, you have the power to shop around for your lowest rate. That can make a big difference in your monthly payment and long-term costs.

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Assumable Mortgage: What Is It, How Does It Work and Should You Get One?

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An assumable mortgage allows a home buyer to not just move into the seller's former house, but to step into the seller's loan, too. This means that the remaining balance, repayment schedule and rate will be taken over by the new owner.

When mortgage rates are high, assumable mortgages can be particularly attractive to buyers, who could stand to save thousands by taking over a home loan at an interest rate below what’s currently on offer. Picture a home purchased in November 2016, when rates hovered around 4%. Someone buying that home with an assumable mortgage in November 2022 could save about 3 percentage points on their rate.

Only government-backed mortgages, such as loans backed by the Federal Housing Administration and Department of Agriculture, can qualify as assumable mortgages. However, in addition to taking on the home’s remaining debt, the buyer will likely have to pay off the difference between the mortgage balance and the home’s current value. This could necessitate a second mortgage .

Here’s how assumable mortgages work, and the advantages and disadvantages for buyers and sellers.

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What is an assumable mortgage?

An assumable mortgage is a home loan that can be transferred from the original borrower to the next homeowner. The interest rate and payment period stay the same. For example, if a 30-year mortgage is three years old, the person assuming the loan has 27 years to pay it off. Essentially, only the name on the mortgage documentation changes; everything else remains the same.

» MORE: Income you need to qualify for a mortgage

Which mortgages are assumable?

Not all mortgages are assumable in a home sale. Buyers can assume federally guaranteed or insured mortgages, but not other types of home loans. Conventional loans cannot be assumable, but buyers can assume:

FHA loans , which are insured by the Federal Housing Administration.

VA loans , which are guaranteed by the Department of Veterans Affairs. The buyer does not have to be a veteran or in the military.

USDA loans , which are guaranteed by the Department of Agriculture.

How to assume a mortgage

Assuming a mortgage requires the lender's approval. If a buyer and seller enter into an assumption informally, without telling the lender, they take a risk. After the lender finds out, it can demand payment of the full loan amount immediately. And if the loan stays in the seller's name, the seller remains responsible for the debt.

In a properly done assumption, the new borrower must jump through some of the same hoops it would take to qualify for a new loan. The loan's servicer requests the borrower's credit report, plus financial and employment information. Finally, the lender releases the original borrower's liability for the debt.

If the buyer is assuming a $200,000 mortgage balance on a home that’s now worth $450,000, they’ll have to work out with the seller how and when they’re going to pay that $250,000 difference. The seller could demand the money upfront.

You can find an assumable mortgage by including “assumable” as a keyword when searching available listings to see if any of them are offering this as a selling feature. You could also search pre-foreclosure listings and reach out to the owners to see if they’d be open to selling the home with an assumable mortgage as an alternative to foreclosure.

The transaction could be completed among you, the seller and the lender, but you may find it helpful to use an agent to negotiate the details, like the closing date and the terms for paying the difference between the home’s value and the mortgage balance.

Advantages of assumable loans for sellers

Easier sale: An assumable loan can make the home more marketable if interest rates have risen in the years since the mortgage was originated. Imagine a situation in which someone gets an assumable mortgage with a 4.75% interest rate and then sells the house five years later when interest rates are around 7%. That 4.75% rate, impossible to get otherwise, could tempt buyers to choose that house over another.

Higher price: Another advantage is that an assumable mortgage endows the seller with negotiating power on price. Since the buyer is taking on a lower rate for the principal balance than what they’d get on a new loan (and since assumable mortgages have lower closing costs) , borrowers will be able to apply these savings to their second mortgage. In turn, the seller can command a higher sale price.

Advantages of assumable loans for buyers

Lower interest rate: This is the biggest advantage of an assumable mortgage since it allows the buyer to access a rate that could otherwise be unachievable in the current market.

Lower closing costs: Because it costs less to assume a loan than to get a new mortgage and the FHA, VA and USDA impose limits on assumption-related fees, assumable mortgages have more affordable closing costs. Buyers assuming a mortgage are also typically not required to get an appraisal, which can save hundreds of dollars.

» MORE: Mortgage closing costs, explained

Disadvantages of assumable loans for sellers

VA entitlement: Sellers who have VA loans can hit a snag when buyers assume their mortgages.

With a VA loan, the government guarantees that it will repay part of the balance if the borrower defaults. The VA, which limits this guarantee, calls its dollar amount the borrower's "entitlement." Depending on the loan amount, some or all of the borrower's entitlement remains tied up in the home with the assumed mortgage, even after the sale.

Because the entitlement remains with the assumed loan, the seller might not have enough entitlement remaining to qualify for another VA loan to buy the next home.

A seller can avoid this predicament by selling to a veteran or member of the military who is eligible for a VA loan. The buyer can then substitute their entitlement for the seller's. In such a case, the VA restores the seller's full entitlement.

Disadvantages of assumable loans for buyers

Large down payment: Rising home values can torpedo mortgage assumptions. To understand why, remember that when a buyer assumes a mortgage, it's like stepping into the seller's mortgage, which may no longer cover the cost of the house.

Let's say a seller, after paying the mortgage for five years, owes $150,000 on it. The buyer would assume that amount. But the home's value has risen to $215,000 in the five years that the seller has owned it. The buyer will have to pay the difference. In most cases, that means getting a second mortgage, which carries both closing costs and a higher rate, further undermining the assumable loan's advantage.

» MORE: What is a second mortgage?

FHA stipulations : FHA loans have certain criteria that the new owner has to meet when they assume the mortgage, including income and credit requirements. And for an FHA mortgage to be assumable, the home's sellers must have lived there for a certain amount of time.

Mortgage insurance: FHA loans can also present a drawback because their monthly mortgage insurance payments last for the life of the loan and can be eliminated only by refinancing the loan. Those monthly payments negate some of the benefits of assuming the loan's lower interest rate.

» MORE: FHA loan requirements

Assuming a mortgage after divorce or death

Not all mortgage assumptions arise from home sales. Sometimes one spouse assumes the loan following a divorce or the death of the other spouse.

In these cases, the person who assumes the loan must prove the ability to make the monthly payments. Approval isn't automatic.

If the original loan note has both spouses on it, then the lender likely took both of their credit scores and incomes into account when they qualified for the mortgage. When one spouse is no longer on the loan, then the lender will want to confirm that the remaining borrower is also qualified on their own.

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What Is an Assumable Mortgage?

How It Works

What Types of Loans Are Assumable?

Advantages and Disadvantages
Special Considerations

The Bottom Line

Personal Finance

Assumable Mortgage: What It Is, How It Works, Types, Pros and Cons

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

An assumable mortgage is a type of home financing arrangement where an outstanding mortgage and its terms are transferred from the current owner to the buyer. By assuming the previous owner's remaining debt, the buyer can avoid obtaining their own mortgage. Different types of loans can qualify as assumable mortgages, though there are some special considerations to keep in mind.

Key Takeaways

An assumable mortgage is an arrangement in which an outstanding mortgage and its terms are transferred from the current owner to a buyer.
When interest rates rise, an assumable mortgage is attractive to a buyer who takes on an existing loan with a lower rate.
USDA, FHA, and VA loans are assumable when certain criteria are met.
The buyer need not be a military member to assume a VA loan.
Buyers must still qualify for the mortgage to assume it.

Investopedia / Mira Norian

Understanding Assumable Mortgages

If you are buying a house, you may take out a mortgage from a lending institution to finance the purchase of the home or property. The contractual agreement for repaying the mortgage includes paying the principal payments plus interest to the lender.

If you decide to sell your home later, you may be able to transfer the mortgage to the homebuyer. In this case, the original mortgage taken out is assumable.

An assumable mortgage allows a homebuyer to assume the current principal balance, interest rate, repayment period, and any other contractual terms of the seller's mortgage. Rather than going through the rigorous process of obtaining a home loan from a bank, a buyer can take over an existing mortgage.

There could be a cost-saving advantage if current interest rates are higher than the interest rate on the assumable loan. In a period of rising interest rates, the cost of borrowing also increases. When this happens, borrowers will face high interest rates on any loans for which they are approved.

An assumable mortgage may have a lower interest rate, an attractive feature to buyers. If the assumable mortgage has a fixed interest rate, it will not be impacted by rising interest rates. A mortgage calculator can be a good resource to budget for the monthly cost of your payment.

An assumable mortgage is attractive to buyers when the existing mortgage rate is lower than current market rates .

Some of the most popular types of mortgages are assumable:

Federal Housing Authority (FHA)
Veterans Affairs (VA)
U.S. Department of Agriculture (USDA)

If you are a buyer who wishes to assume a mortgage from a seller, you must meet specific requirements and receive approval from the agency sponsoring the mortgage.

FHA loans are assumable when both transacting parties meet the requirements for the assumption. For instance, the property must be used by the seller as their primary residence. If you were the buyer, you must first verify that the FHA loan is assumable and then apply as you would for an individual FHA loan. The seller's lender will verify that you meet the qualifications, including being creditworthy. If approved, you will then assume the mortgage. However, until the seller is released from the loan, they are still responsible for it.

The Department of Veterans Affairs offers mortgages to qualified military members and spouses of military members. However, to assume a VA loan, you need not be a member of the military to qualify. However, the lender and the regional VA loan office will need to approve you for the loan assumption, and most often, buyers who assume VA loans are military members.

For loans initiated before March 1, 1988, buyers may freely assume the VA loan. In other words, you would not need the approval of the VA or the lender to assume the mortgage.

USDA loans are offered to buyers of rural properties. They require no down payment and often have low interest rates. To assume a USDA loan, you must meet the standard qualifications, such as meeting credit and income requirements, and receive approval from the USDA to transfer title. You may assume the existing rate of interest and loan terms or new rates and terms. Even if you meet all requirements and receive approval, the mortgage cannot be assumed if the seller is delinquent on payments.

Conventional loans backed by Fannie Mae and Freddie Mac are generally not assumable, though exceptions may be allowed for adjustable-rate mortgages. Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, though it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.

Advantages and Disadvantages of Assumable Mortgages

Rate on the mortgage may be lower than current market rates

May not need to apply for a new mortgage

If seller's home equity is low, there are less out-of-pocket costs for the buyer

May need a substantial down payment when the seller's home equity is high

Lenders may not cooperate when a second mortgage is needed

With two mortgages, the risk of default increases

The advantages of acquiring an assumable mortgage in a high interest rate environment are limited to the amount of existing mortgage balance on the loan or the home equity . For example, if you are purchasing a home for $250,000 and the seller's assumable mortgage only has a balance of $110,000, you will need to make a down payment of $140,000 to cover the difference. Or you will need a separate mortgage to secure the additional funds.

A disadvantage is when the home's purchase price exceeds the mortgage balance by a significant amount, requiring you to obtain a new mortgage. Depending on your credit profile and current rates, the interest rate may be considerably higher than the assumed loan.

Usually, you will take out a second mortgage on the existing mortgage balance if the seller’s home equity is high. You may have to take out the second loan with a different lender from the seller’s lender, which could pose a problem if both lenders do not cooperate with one another. Also, having two loans increases the risk of default, especially when one has a higher interest rate.

If the seller’s home equity is low, however, the assumable mortgage may be an attractive acquisition. If the value of the home is $250,000 and the assumable mortgage balance is $210,000, you only need to put up $40,000. If you have this amount in cash, you can pay the seller directly without having to secure another credit line.

Assumable Mortgage Transfer Approval

The final decision over whether an assumable mortgage can be transferred is not left to the buyer and seller. The lender of the original mortgage must approve the mortgage assumption before the deal can be signed off on by either party. The homebuyer must apply for the assumable loan and meet the lender’s requirements, such as having sufficient assets and being creditworthy.

A seller is still responsible for any debt payments if the mortgage is assumed by a third party unless the lender approves a release request releasing the seller of all liabilities from the loan.

If approved, the title of the property is transferred to the buyer who makes the required monthly repayments to the bank. If the transfer is not approved by the lender, the seller must find another buyer that is willing to assume the mortgage and has good credit.

A mortgage that has been assumed by a third party does not mean that the seller is relieved of the debt payment. The seller may be held liable for any defaults which, in turn, could affect their credit rating . To avoid this, the seller must release their liability in writing at the time of assumption, and the lender must approve the release request releasing the seller of all liabilities from the loan.

What Does Assumable Mean?

Assumable refers to when one party takes over the obligation of another. In terms of an assumable mortgage, the buyer assumes the existing mortgage of the seller. When the mortgage is assumed, the seller is often no longer responsible for the debt.

What Does Not Assumable Mean?

Not assumable means that the buyer cannot assume the existing mortgage from the seller. Conventional mortgages are non-assumable. Some mortgages have non-assumable clauses , preventing buyers from assuming mortgages from the seller.

How Does An Assumable Loan Work?

To assume a loan, you must qualify with the lender. If the price of the house exceeds the remaining mortgage, you must remit a down payment worth the difference between the sale price and the mortgage. If the difference is substantial, the buyer may need to secure a second mortgage.

How Do I Know If My Mortgage Is Assumable?

Certain types of home loans are assumable. For example, USDA, VA, and FHA loans are assumable. Each agency has specific requirements that both parties must fulfill for the loan to be assumed by the buyer. The USDA requires that the house is in a USDA-approved area, the seller must not be delinquent on payments, and the buyer must meet certain income and credit limits. The buyer must confirm with the seller and the seller's lender if the loan is assumable.

Is an Assumable Mortgage Good?

When current interest rates are higher than an existing mortgage's rates, assuming a loan may be the favorable option. Also, there are not as many costs due at closing. On the other hand, if the seller has a considerable amount of equity in the home, the buyer will either have to pay a large down payment or secure a second mortgage for the balance not covered by the existing mortgage.

An assumable mortgage may be attractive to buyers when current mortgage rates are high and because closing costs are considerably lower than those associated with traditional mortgages. However, if the owner has a lot of equity in the home, the buyer may need to pay a substantial down payment or secure a new loan for the difference in the sale price and the existing mortgage. Also, not all loans are assumable, and if so, the buyer must still qualify with the agency and lender. If the benefits outweigh the risks, an assumable mortgage might be a good option for homeownership.

Cornell Law School. " Assumable Mortgage ."

U.S. Department of Housing and Urban Development. " Chapter 7 - Assumptions ," Page 2 of PDF.

Bureau of Veteran Affairs. " Processing Transfers of Ownership Under Valeri ," Page 2.

United States Department of Agriculture. " Chapter 2 - Overview of Section 502 ," Page 2.

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Assumable mortgage: what it is and how it works

April 18, 2023

What is an Assumable Mortgage?

An assumable mortgage allows a buyer to assume the rate, repayment period, current principal balance and other terms of the seller’s existing mortgage rather than obtain a brand-new mortgage.

How does an Assumable Mortgage Work?

An assumable mortgage works much the same as a traditional home loan, except the buyer is limited to financing through the seller's lender. Lenders must approve an assumable mortgage. If done without approval, sellers run the risk of having to pay the full remaining balance upfront.

One major advantage is that an appraisal is not required in these instances—which can potentially save buyers hundreds of dollars. Buyers should still order a home inspection to check for any repair issues with the property. Once the buyer closes on the home, the seller will no longer be liable for the mortgage payments.

Which Mortgages Are Assumable?

Not all home loans are assumable. Unfortunately, most conventional mortgages are not assumable. However, loans that are insured by the Federal Housing Administration (FHA) or backed by the Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA) are assumable as long as specific requirements are satisfied.

For most FHA and VA loans, a seller must obtain lender approval for an assumable mortgage.

Conventional loans

Can conventional loans be assumed? The answer is: sometimes. In most cases, they are not assumable because the mortgage contract contains a due-on-sale clause. This allows the lender to demand the borrower pay the entire remaining loan amount as soon as the property is sold.

However, if you have a conventional adjustable-rate mortgage (ARM) and meet certain financial qualifications, it’s possible that your mortgage is eligible for assumption. Fannie Mae—one of the two mortgage agencies that sets rules for conventional loans—allows for assumable ARMs as long as the borrower does not exercise any option they may have to convert the loan to a fixed-rate mortgage.

All FHA loans are generally assumable, as long as the lender approves the sale. For loans originated on or after Dec. 15, 1989, the lender must approve a sale by assumption, as long as the buyer is found to be creditworthy.

Newer FHA loans require that both the buyer and seller meet specific criteria for an assumable mortgage. Sellers must live in the home as a primary residence for a set amount of time and buyers must go through the standard application process for an FHA loan.

Backed by the Department of Veterans Affairs, a VA loan is available to eligible military members, service members, and their spouses. A buyer who is not a qualified current or former military service member can apply for a VA loan assumption.

Depending on how the loan was set up, a lender may need to have the loan approved by the Regional VA Loan Center, which may take additional time to process.

In rare cases, a buyer might come across a freely assumable loan that applies to any VA loan closed on or before March 1, 1988. Sellers that fall in this category do not need to obtain lender approval but may still be liable for making payments if a buyer fails to pay their mortgage on time. However, buyers may want to think twice before taking over these types of loans, since mortgages originated in the late 1980s tend to have higher interest rates.

A Special Caution for VA Assumable Loans

There is one special note for those who might be looking to have someone assume their VA loan. Although anyone can assume a VA loan, even those without the usual military service required to obtain the loan initially, the only way to have your VA entitlement restored so that you can buy another home with a VA loan is to have the home assumed by a fellow eligible active-duty service member, reservist, veteran, or eligible surviving spouse.

Should the loan be assumed by a non-veteran, VA entitlement will only be the remaining balance of any previously unused entitlement benefits.

USDA loans are offered to buyers of rural properties. They require no down payment and often have low interest rates.

Assumptions are usually reserved for family members who are exchanging the title of a property. The rates and terms of the original mortgage are preserved and no review of the buyer’s creditworthiness nor appraisal of the property itself are required.

To know whether your mortgage is assumable, look for an assumption clause in your mortgage contract. This provision is what allows you to transfer your mortgage to someone else. Remember that if assumption is allowed, the mortgage lender will typically hold the new borrower to the loan’s eligibility requirements.

How to qualify for mortgage loan assumption

To qualify for a mortgage assumption, you first need to confirm that the house you want is eligible for assumption. Then, unless you are buying the house from a family member, you should be prepared to meet the same minimum credit and income requirements that apply to typical, non-assumed mortgages.

Lenders will check a buyer's credit score and debt-to-income ratio (DTI) to see if they meet minimum requirements. Additional information such as employment history, explanations of income for each applicant, and asset verification for a down payment may be needed to process the loan.

The table below lists the minimum requirements for the most common loan types:

How to assume a mortgage after death or divorce

Not all mortgage assumptions arise from home sales. Sometimes one spouse assumes the loan following a divorce or the death of the other spouse. In cases such as this, assumption is allowed even if the contract does not include an assumption clause.

Assumption After Death

An heir can assume an existing mortgage from a relative who has passed away. But there’s no legal requirement for the heir to keep the mortgage; they can choose to pay off the debt, refinance, or sell the property. If they choose to keep it, they’re responsible for making future mortgage payments with the house deed and the loan in their name.

Prior to the initiation of the assumption process, the family member/heir must provide documentation that they are the heir and current owner of the property they are looking to assume. They must receive confirmation of Successor in Interest (SII) status from the Loan Servicing team.

Assumption Due to Divorce

If one person is awarded sole ownership of a property through divorce proceedings, that person can assume the full existing mortgage themselves. The borrower awarded sole ownership of the property will be required to go through the credit qualification process. Approval is not automatic.

If the original loan note has both spouses on it, then the lender likely take both of their credit scores and incomes into account when they qualified for the mortgage. When one spouse is no longer on the loan, then the lender will want to confirm that the remaining borrower is qualified on their own.

What costs are associated with assuming a mortgage?

Assumption fees are much lower than fees on a standard mortgage loan. The lender will charge you for their incidental costs, including credit report, flood zone search, title and escrow (if applicable), and recording. Though title and escrow charges can vary quite a bit by state, the total of these fees will likely be less than $1,000, and are almost always under $1,500. For example, Bank of America's average assumption fee is $1,062.

In addition to these incidental costs, the lender is allowed to charge a flat “assumption fee” for their services. If the loan in question is a government loan (FHA or VA), the lender is limited to what they can charge. The maximum allowed assumption fee for FHA is $900. VA assumption fees are $300 plus the cost of a credit report (lenders that have automatic approval authority) or $250 plus the cost of a credit report (lenders that must submit VA loans for manual approval).

Closing costs are required on assumptions. These are typically in the range of 2-5% of the loan amount.

How do I start the assumption process?

Standard assumption .

Determine if the loan is assumable.
Request an Assumption Package from our Assumptions Team [email protected]

Assumption After Death

Contact Customer Care: 800-365-7107

Assumption Due to Divorce

I have completed my assumption package – now what.

Email your completed Assumption Package and all supporting documentation in PDF format to [email protected]

If you prefer to submit the physical application and copies of your supporting documentation, it can be mailed to:

Shellpoint Mortgage Servicing

Attn: Document Administration – Assumptions

75 Beattie Place, Suite 600

Greenville, SC 29601

How long does the assumption process take?

The time to process an assumption can vary based on the type of loan that the assumption is being processed on, as well as the type of assumption.

The below table provides a general timeline for each assumption type. Please note that the processing of an assumption request, regardless of type, does not begin until the package is completed and returned with all supporting documentation.

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Loan Modification

What you need to know about a mortgage assumption, browse by topic, mortgage relief, short sales, distressed sales, liens and judgments, foreclosure, reinstatement, mortgage servicers, education resources, ask an attorney, glossary of terms, what is a mortgage assumption.

An assumption is the term used by mortgage lenders to describe the process of taking over (or assuming) legal liability on a mortgage.

When do mortgage assumptions usually come into play?

In a Divorce situation: If you were married and your spouse was included as a borrower on the original mortgage, you may need to complete an assumption following your divorce . Typically, one spouse gets awarded the property through the divorce and the other spouse needs to be removed from the mortgage. The spouse wanting to retain the home would “assume” the mortgage.
In a Death situation: If a borrower passes away and someone else wants to assume the legal liability on the mortgage and retain the property, they would need to complete an assumption. Most commonly, in this situation, the people trying to complete an assumption are the parties who were awarded the property through the probate of the estate.

Who can apply for a mortgage assumption?

To apply for an assumption, you have to be able to show the lender that you have been given the legal rights to handle the property.

In a divorce situation , the documentation that proves this is the:

Executed divorce decree
The quit claim deed that accompanies the divorce decree

The mortgage lender will review a copy of the divorce decree. They also want to see a copy of a recorded Quit Claim Deed. A Quit Claim Deed is a document that removes one spouse from the Title of the home.

It is very common for a Quit Claim Deed to be issued and recorded in conjunction with your divorce decree, so if you’re currently working on a divocrce, make sure you talk to your divorce attorney about getting a Quit Claim Deed executed as part of the process.

In a death situation, if the borrower died with a will , you have to be the party who was awarded the rights in the will in order to apply for an assumption. Most commonly, the person who becomes the executor of the will is the person who applies for an assumption.

If the borrower died without a will , the estate will need to go through probate court in order to have a personal representative appointed. Once this representative is appointed, their job is to make decisions about how the home will be handled.

Most commonly, it is the personal representative who applies for the assumption.

If you are someone who was not included on the original loan as a borrower and you do not have any rights to handle the home following the probate of the estate, you likely will be unable to assume the loan (even if you were living in the property and/or contributing to the mortgage).

How do you apply for an assumption?

To apply for an assumption, you have to prove to the lender that you can afford the mortgage payments on your own.

When the original borrower(s) took out the loan, they had to prove that they could afford the mortgage, so lenders put assumption requests through the same review process.

You can be expected to submit the following documents to show that you can afford the mortgage:

Income Verification: You will be asked to send in pay stubs, benefit award letters, profit / loss statements etc. to show the bank your income.
Tax Returns: Usually, you’ll be required to send in tax returns for the most recent two years.
Bank Statements: You can expect to have to submit your most recent 60-days worth of bank statements.
Verification of your Expenses: You can expect to have to submit verification of your expenses either on an expense sheet that you fill out or by sending in utility bills.
Credit Score / Credit Report: You can expect the lender to pull your credit report and review your credit score to see if you are paying on any other outstanding debts.

The lender is looking at your front-end and back-end debt to income ratios during this process.

The decision on whether you qualify for the assumption will be issued based on whether the mortgage lender believes you can comfortably afford payments without defaulting on the mortgage.

(Sometimes, in a divorce situation, if you have a divorce decree AND an executed Quit Claim Deed showing that your spouse has been removed from Title, lenders will allow you to avoid the financial review part of the assumption process. This depends on your individual lender’s practices. If you’re in a divorce situation, you may want to ask your lender about this option before submitting documents).

Do mortgage lenders have to give you an assumption if you ask for one?

No. Different investors have different guidelines around assumptions. Some investors include terms in the original mortgage documents saying that the loan is not assumable.

If your mortgage is not assumable, retaining the property and assuming the loan is not going to be an option.

If you’re a co-borrower on the mortgage and the other co-borrower died, you don’t have to apply for an assumption

In this very particular situation , if you are a co-borrower on the mortgage and the other co-borrower died, you just have to send in the death certificate of the deceased borrower in order to get their name removed from the loan.

Since you already have legal liability on the mortgage and it is clear the borrower passed away, the remaining liability on the mortgage automatically passes to you.

You should inform the lender about the borrower’s death via the death certificate and just keep making payments on the property.

Assumptions vs. Adjusting the Parties on Title

Being “on Title” for a property means that you have an interest in the decision making of the home but it does not mean that you have legal liability or responsibility on the underlying mortgage.

If you are “on Title,” you have to sign off on any sales or refinances of the property.

A Quit Claim Deed is the instrument that can add or remove people from Title.

You can add a party to Title relatively easily with a Quit Claim Deed but using a Quit Claim Deed does not change the legal obligation on the underlying mortgage.

Many people think that by being on Title, they have assumed the loan but only a formal assumption can change who is considered a borrower on the mortgage.

Mortgage Assumptions and Loan Modifications

It is very common for mortgages that need assumptions to also be behind on payments.

Mortgage lenders typically don’t offer an assumption option to borrowers in default

Depending on your investor and mortgage servicer’s guidelines, if the mortgage loan is in default, you cannot adjust the liability on the mortgage through an assumption without resolving the default issue.

In this case, your mortgage servicer will make you apply for a loan modification AND an assumption at the same time.

If this is happening to you, you should familiarize yourself with the loan modification document package and prepare to go through the assumption and the loan modification process simultaneously.

In a divorce situation, the banks may make you do the loan modification FIRST before you can complete the assumption

In a situation where both spouses are borrowers, the loan is in default, and the lender will not let one spouse assume the loan before modifying, understand this…

It is in the interest of BOTH spouses to resolve the default and avoid further foreclosure activity.

The legal liability on the mortgage attaches to BOTH borrowers. So, if the modification cannot go through due to one spouse’s failure to participate, the assumption will not be able to go through, and then the loan will be moved to foreclosure.

Then, BOTH spouses (regardless of their divorce status) will be facing foreclosure. An eventual foreclosure will impact the financial situation of BOTH parties, even if you were the spouse who lost rights to the home.

So, the best thing to do in this situation is to try and work collaboratively with your ex-spouse to get the loan current and back on track through the loan modification process.

Then, the spouse who was awarded the property can apply for the assumption after the loan is current and out of default.

Can I refinance to get my spouse off of the mortgage?

A refinance can be used to remove an ex-spouse from the mortgage in a divorce situation but the mortgage has to be current in order to qualify for a refinance.

A refinance refers to the type of restructuring for a mortgage that is NOT in default. Part of qualifying for a refinance is showing a current on-time payments history.

With a traditional refinance, a new lender buys your mortgage debt, removes your ex-spouse and then writes you a new loan with new terms.

A refinance is different from a loan modification.

A loan modification refers to the type of restructuring for a mortgage that IS in default.

So, if your loan is current and you’re going through a divorce, a refinance may be a viable option to adjust the legal liability.

But, if the loan is in default, you will likely have to complete a loan modification first because you won’t be able to show the qualifying payment history needed for a refinance.

Many people do a loan modification first. The loan modification brings their loan current and then 6 months or so after the modification is finished, they complete a refinance.

What if I can’t afford to retain the home and don’t want to assume the mortgage?

The general rule for determining whether a mortgage payment is affordable for your household is:

Your mortgage payment should be about 30% – 35% of the total monthly household income

A mortgage payment that takes up approximately 33% of monthly household income leaves room for other required monthly expenses to be taken care of and provides additional funds that can be saved for emergency expenses.

This rule is also used by mortgage servicers when they’re deciding whether you can afford a loan modification so if the monthly mortgage payment takes up much more than 33% of the monthly household income, you likely won’t qualify for a loan modification.

Just because you were awarded the property doesn’t necessarily mean you can afford it by yourself. If this is happening to you, it may be time to consider other options to avoid foreclosure:

Selling your home for equity: If you have fallen behind on mortgage payments but you have equity in your home, you can sell your home before foreclosure and walk away with the equity. You do not need your bank’s permission to complete an equity sale of your home, even if you’re behind on payments.
Short Sale: A short sale allows you to sell an underwater property for less than what is owed on the mortgage. Your mortgage lender approves the sale and then typically waives the deficiency balance (the remaining amount owed) so you can sell your home and move on without owing the remaining balance.
Deed in Lieu of Foreclosure: A deed in lieu of foreclosure is an agreement between yourself and your mortgage lender where you sign a document giving the house back to the bank in exchange for the bank agreeing not to foreclose on you.
Buy time using Foreclosure Mediation and then sell shortly before your foreclosure auction: If you qualify for mediation under the WA State Foreclosure Fairness Act , you may be able to receive more time in the home or extend the foreclosure timeline so you can move on your terms.

Mortgage Relief Options For Washington Homeowners

Mortgage issues are complex. Banks and mortgage servicers can be very uncooperative. If you think you might need some help, you have some good options. Here are three articles to help you understand the help that is available to you.

What Can a Mortgage Attorney Do For You What to Look For In a Loan Modification Attorney What Can a Foreclosure Attorney Do For You

If you’re a Washington state homeowner who has questions about the assumption process, feel free to give me a call at (425) 654-1674.

The Challenges You Can Expect When Trying to Get Current on Your Mortgage
Loan Modification vs. Refinance: Know Your Mortgage Relief Options
What To Do When a Borrower On The Mortgage Dies
What is a Standalone Partial Claim?

How Can I Help?

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WOW just what I was searching for. Came here by searching for differently

Thanks for posting this; called my current mortgage lender as final divorce papers – I am getting the house – are about to be entered.

I have some reps telling me my mortgage is assumable and then other (the refinance team) telling me a mortgage can only ever be assumable if it is an FHA or VA loan – and that conventional loans are never able to be assumed. Frustrating process for sure.

Definitely – if you are in a state where you can find a mortgage attorney to help you get through the process, that would be good. Make sure you get a Quit Claim Deed executed as part of your divorce process to make the process easier!

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Mortgage assumptions: Understanding your options

What is an assumption.

A home loan assumption allows you as the buyer to accept responsibility for an existing debt secured by a mortgage on the home you’re buying. The two processes available to suit your needs are Qualified Assumptions, and the Name Change and Title Transfer Requests. Compare and find the option that’s right for you:

Qualified Assumptions (QA)

May allow for release of liability
Credit qualification required
Average 90 day processing

This option allows you to release existing borrowers from an existing loan while maintaining the same terms and conditions. QA is a loan approval process similar in nature to refinancing, and involves income and credit qualifying. NOTE: Not all loan programs are assumable. For more information, download the Qualified Assumption application package.

Third party fees, like credit report, flood certification and Property ownership report will apply. The amount of these fees will be determined by the loan program and (in some cases) where the property is located.

Getting Started

Simply download the Qualified Assumptions application package, fill in the required information and mail it to Qualified Assumptions, TX2-981-03-25, 7105 Corporate Drive, Plano, TX 75024 to start the process.

Name Change and Title Transfer Request

Allows for transfers of title
Simple name changes
Removal of deceased borrowers

This option lets you make administrative changes to loans that don’t result in release of liability. Changes may include altering the names of existing borrowers that may have changed due to marriage, divorce or death; or changes to the title (deed) by either transferring ownership to a Trust or adding family members to the deed if all requirements are met. NOTE: This process cannot release any borrower from liability for the debt.

Most of the services provided have little to no cost and range from $0-$125

Simply download the fax cover sheet and fax the requested information to 1-866-200-5596 to start the process.

If you're still not sure which option is right for you, please choose one of the following Frequently Asked Questions (FAQs) to get more information.

View Qualified Assumption FAQs
View Name Change and Title Transfer Request FAQs

Qualified Assumption Frequently Asked Questions (FAQs)

Are all loans assumable.

Answer: No, all loans are not assumable. Assumption eligibility is determined by verbiage in the note/mortgage. Generally ARM loans in the adjustable period, VA, and FHA loans are assumable.

What are the requirements to assume a loan?

Answer: A qualified assumption requires the assuming borrower to qualify for credit based on current underwriting guidelines. Credit score, debt-to-income ratios and other factors may be used to determine qualification, but vary based on loan type.

Will Bank of America remove my ex-spouse based on the requirements of my divorce decree?

Answer: A divorce decree typically does not obligate a lender to remove a borrower. The person that is awarded the property will typically have to qualify solely on his or her credit profile based on current underwriting guidelines regardless of the requirements of the divorce decree.

What if my divorce is not final?

Answer: A fully executed divorce decree/separation agreement along with a property settlement agreement that clearly details the requirements each party is obligated to follow (related to the property) is required in order to move forward with an assumption request.

How can a loan be assumed in the event of a death of the borrower?

Answer: The successor that is on title prior to the customer’s death or has inherited the property through probate will need to qualify for credit in order to assume the liability.

Do I have to go through the assumption process if I used my VA entitlement to secure the original financing and would like to release the co-borrower?

Answer: No. If the remaining obligated veteran used their entitlement to secure the original financing, the VA Regional Loan Center would need to approve the release of the co-borrower. The assumptions unit at the bank will process the release based on all the terms being met in the documented VA release letter.

What happens if the assuming borrower does not qualify to assume the loan?

Answer: If the assuming borrower does not qualify to assume the existing loan, he/she may choose to apply for a new loan by simply contacting a mortgage loan officer at 1.866.536.0575.

Can I have someone co-sign with me for the assumption?

Answer: Yes, co-signers are permitted, but there are loan program restrictions specific to qualifying with a non-occupying borrower that will be discussed once your application is received.

Will the seller remain financially responsible for the loan once the Qualified Assumption is approved and completed?

Answer: No. Once a Qualified Assumption is approved and closed, the seller is released from all future liability associated with the loan.

Will the person being released from liability for the loan be required to sign any documents?

Answer: Yes. In order to complete the Qualified Assumption, the person being released from financial liability will be required to sign certain documents. Because of this, a seller who is unable or unwilling to cooperate can prevent this process from being an option.

If I have a VA loan, does an assumption restore my eligibility?

Answer: The Qualified Assumption process primarily releases one or more borrowers from liability for the debt. Only if the person(s) assuming the loan has their own eligibility to substitute for the borrower being released will the eligibility be restored. If the buyers do not have any eligibility to substitute, then the original eligibility remains with the loan until it is either paid off or refinanced.

Name Change and Title Transfer Request Frequently Asked Questions (FAQs)

Is there a fee required in order to change my name on the account.

Answer: No, a fee isn’t required in order to change your name on the account.

How long does it take for my name to be changed on the account?

Answer: Your name will be changed on the account within three business days after receiving the required documentation.

Can the title be transferred to an unrelated third party?

Answer: No, the title generally cannot be transferred to an unrelated third party.

Can the title be transferred to an LLC, corporation or partnership?

Answer: No, the title cannot be transferred to an LLC, corporation or partnership.

Can the title be transferred to a direct family member?

Answer: Under certain circumstances, a title transfer to a direct family member can be made as long as certain conditions are met.

Can the title be transferred to a living trust?

Answer: Yes, the title can be transferred to a living trust if the borrower is the beneficiary and occupies the property.

How long does it take to get a decision on a title transfer request?

Answer: You will be sent a notice of the bank’s decision within three business days of receiving your request.

What is required in order to gain access to an account in the case of death?

Answer: The successor that is on title prior to the customer’s death or has inherited the property through probate generally will be granted access. If you were not on title prior to the customer’s death, legal documentation identifying you as the administrator/executor/heir for the decedent’s estate will be required.

What if I’ve already transferred title and it’s not approved by the bank?

Answer: A notice will be sent to you requesting documentation so that we may review for possible consent to the title transfer. It is important to note that without proper consent to the title transfer, the loan may be required to be paid in full or the property transferred back to the original owner.

Where do I send correspondence to change my name on the account, request access as the successor, or request consent to transfer title?

Answer: You can either fax to 1.866.200.5596 or mail to the address listed below: Bank of America N.A. Mail Stop CA6-914-01-90 1800 Tapo Canyon Rd. Simi Valley, CA 93063

What documentation do I need in order to update an account to reflect that the borrower is deceased?

Answer: A death certificate is required in order to update an account to reflect that a borrower is deceased.

Where do I send notification to the bank that a borrower is deceased?

Answer: You can send the death certificate and any related court-approved documentation identifying administrator, executor or heirs by fax to 1.866.694.9046 or mail to this address: Bank of America N.A. Estate Department P.O. Box 982263 El Paso, TX 79998-2263

How will I know if additional documentation is required?

Answer: A notice will be sent requesting additional documentation within three business days of receiving the access request.

This web page is intended to provide general answers to most frequently asked questions for the assumption of a loan. However, your specific loan request may have additional requirements that include, but are not limited to: satisfying investor guidelines, complying with state and federal laws, and adhering with the bank’s policies and procedures from the time of application to post-funding. For specifics and additional answers regarding your loan request, please contact Bank of America’s Customer Service Department at 1.800.669.6607 .

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The definition of assignment & assumption agreement.

By Rebecca K. McDowell, J.D.

October 19, 2019

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

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Land Contract Law in Florida

Assignments and assumptions are part of contract law and refer to the transfer of someone's duties and benefits in a contract to another. Assignments and assumptions are common with respect to contracts for loans or leases. A lender or lessor may assign its rights to another lender or lessor, and a borrower or lessee may find someone to assume the loan or lease and make the payments.

The Elements of a Contract

A contract is legally formed when two or more parties enter into an agreement with certain elements, which include:

An offer. For instance, in a mortgage transaction, the lender offers to loan money to the borrower.
Acceptance of the offer. The mortgage borrower agrees to borrow the money.
Consideration. Consideration in a contractual relationship means the things the two parties give to each other in exchange for entering the contract. A mortgage lender loans money to the borrower, and in exchange, the borrower agrees to repay the money and give the lender a lien on the house. The loan, the repayment with interest and the mortgage lien are consideration for the contract.
Mutuality. The parties must have come together and agreed upon the terms of the contract Read More: How Does a Contract Work?

Burdens and Benefits of a Contract

The contract sets forth what the parties are required to do during the contractual relationship. With a mortgage, the lender is required to loan the money and apply the payments correctly in accordance with the agreement, and then release the lien when the loan is paid. The borrower is required to pay the loan back with interest, pay the property taxes and make sure the property has insurance.

These contractual obligations create both burdens and benefits on both sides. The lender has the burden of making the loan and applying the payments correctly, but it has the benefit of receiving interest on the loan. The borrower has the burdens of making payments and insuring the property but has the benefit of owning the home.

Assigning a Contract

An assignment occurs when one party to a contract transfers, or assigns, its rights and obligations under the contract to another party. This happens frequently with mortgage loans, as lenders sell loans to other lenders. The lender will enter into an assignment agreement and assign the note and the mortgage to another party. The borrower then must make the payments to the assignee. The assignee's right and obligations under an assignment are the same as the assignor's rights and obligations and cannot be changed without a new contract.

Assuming a Contract

An assumption is the other side of the coin, in a sense. Assumptions are common with respect to leases and mortgages and typically occur when the borrower or lessee wants to transfer the property to someone else without paying off the loan or lease. Assumption means someone is taking over the side of the contract that requires payment.

If the contract allows it, another person can agree to assume the original party's obligations under the contract – the obligations to make monthly payments, etc. – in exchange for taking over the ownership or the lease.

Not every contract can be assumed. The language of the contract will state whether the borrower or lessee is allowed to transfer the property or lease by assumption.

Assignment and Assumption Agreements

Assignments and assumptions are both conducted by written agreement. Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will cover both; the parties are assigning the benefits and assuming the burdens.

Assignments and assumptions are both transfers of contractual benefits and burdens from one party to another. They differ from each other based on the original position of the transferring party and the duties and benefits being transferred.

Bankrate: Assumable Mortgage: Take Over Seller's Loan
The Law Dictionary: What is Assumption?
Nolo: What Is an Assignment of Contract?
U.S. Legal: Elements of a Contract

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Understanding an assignment and assumption agreement

Need to assign your rights and duties under a contract? Learn more about the basics of an assignment and assumption agreement.

Get your assignment of agreement

by Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...

The assignment and assumption agreement

The basics of assignment and assumption, filling in the assignment and assumption agreement.

While every business should try its best to meet its contractual obligations, changes in circumstance can happen that could necessitate transferring your rights and duties under a contract to another party who would be better able to meet those obligations.

Person presenting documents to another person who is signing them

If you find yourself in such a situation, and your contract provides for the possibility of assignment, an assignment and assumption agreement can be a good option for preserving your relationship with the party you initially contracted with, while at the same time enabling you to pass on your contractual rights and duties to a third party.

An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.

In order for an assignment and assumption agreement to be valid, the following criteria need to be met:

The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
The assignor must agree to assign their rights and duties under the contract to the assignee.
The assignee must agree to accept, or "assume," those contractual rights and duties.
The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.

A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it's a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.

When you're ready to enter into an assignment and assumption agreement, it's a good idea to have a firm grasp of the basics of assignment:

First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
All parties to the agreement should carefully review the document to make sure they each know what they're agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.

Unless you're dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:

Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties' rights to assign under this initial agreement
The effective date of the assignment and assumption agreement
Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same

In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.

Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.

Assignment and Assumption Agreement | Practical Law

Assignment and Assumption Agreement

Practical law standard document 0-381-9984 (approx. 10 pages).

Loan Assumption vs Refinance: Making the Best Choice in Divorce

Dealing with the house in a divorce
Published on December 29th, 2023

Richard Haddad is the managing editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.

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At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.

In a divorce, the largest asset most couples divide is their marital home. Typically, one spouse opts to stay in the home, buying out the other’s share of the property’s equity. This buyout is often made possible through refinancing the mortgage, which also removes the departing spouse’s name from the loan and title. However, in this high-interest-rate market, couples are weighing “loan assumption vs. refinance.”

The option of a loan assumption can allow the buyout spouse to retain the original mortgage’s payment, interest rate, and term, while still removing one party from the loan and ownership documents.

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Understanding refinancing in the context of divorce

As noted, refinancing during a divorce is a common strategy for the spouse who wishes to keep the marital home. Essentially, this process involves replacing the existing mortgage with a new one, which can serve two primary purposes.

Refinancing enables the buyout of the other spouse’s equity in the property, providing them with their share of the home’s value.
Refinancing removes the departing spouse’s name from both the mortgage and the home’s title, solidifying sole ownership for the remaining spouse.

In a typical scenario, the spouse staying in the home applies for a new mortgage. If approved, this new mortgage pays off the existing loan, and any additional funds secured through the refinancing are used to pay the equity owed to the departing spouse. This arrangement provides a clear financial separation of assets and allows for a clear transfer of home ownership.

However, the current market’s higher interest rates bring a significant consideration to the forefront. To illustrate the impact of refinancing at a higher interest rate, let’s consider a scenario involving a $300,000 mortgage balance on a $450,000 house. The existing mortgage has an interest rate of 3%. If the spouse retaining the home refinances for a buyout at a 7% interest rate, here’s how the financials might look:

Existing mortgage at 3% interest rate

Monthly Payment: $1,265
Total Interest Over 30 Years: $155,332

Refinanced mortgage at 7% interest rate

Monthly Payment: $1,996
Total Interest Over 30 Years: $418,527

In this example, the monthly payment increases by $731, and the total interest paid over the life of the loan more than doubles, clearly illustrating the financial impact of refinancing at a higher interest rate. It also demonstrates why, in a high-interest-rate market, the option of loan assumption might be more appealing.

Loan assumption as an alternative

In the face of higher interest rates and their impact on refinancing, loan assumption emerges as a potentially more favorable option for divorcing couples. A loan assumption involves one spouse taking over the existing mortgage under its current terms, including the interest rate, monthly payments, and remaining loan duration.

This option can be particularly appealing in situations like our previous example, where refinancing would significantly increase both the monthly payments and the total interest paid over the life of the loan.

The Garn-St. Germain Act

The Garn-St. Germain Act , enacted in 1982, can play a pivotal role in the assumption of mortgages during a divorce. Traditionally, mortgage assumption was a common practice, but this federal law allowed lenders to enforce “ due on sale ” or “due on transfer” clauses in their contracts, regardless of state laws. Fortunately, the Act includes exceptions where lenders can’t demand immediate loan repayment, notably in cases of death or divorce. In a divorce situation, the transfer of property and mortgage assumption may not activate the “due on sale” clause, often found in conventional loans . Furthermore, many lenders modify or waive standard loan qualification requirements in divorce cases, acknowledging the unique nature of these circumstances.

The key advantage of a loan assumption in a divorce context is the preservation of the original loan’s terms. For the spouse who wishes to keep the home, assuming the existing mortgage means they can continue making payments at the original, potentially lower interest rate. This can result in substantial savings, especially when current market rates are significantly higher.

However, there are important considerations to keep in mind with loan assumptions. Not all mortgages are assumable , and the ability to assume a loan depends on the specific terms set by the lender. In addition, the spouse taking over the mortgage must qualify for the loan on their own, which involves a traditional credit check and financial assessment by the lender. The goal is to be certain the remaining spouse can reliably handle the mortgage payments as the sole borrower.

Another key aspect that must be considered is the legal and financial responsibility for the loan. In some cases, a loan assumption might not fully absolve the departing spouse from the debt responsibility if the loan goes into default after the divorce. It’s important to carefully review the terms of the assumption and ensure that it lines up with all the agreements made in the divorce settlement.

Loan assumption can be a practical and financially prudent choice for divorcing couples, especially in a high-interest-rate environment. By understanding its benefits and limitations, couples can make a more informed decision that best suits their individual circumstances and financial futures.

Comparing loan assumption and refinancing in divorce

When divorcing couples face the decision of how to handle their marital home, understanding the differences between loan assumption and refinancing can help guide your choice. Let’s look at some things to consider for each of these options.

Financial implications

Refinancing: This involves taking out a completely new mortgage at current market interest rates, which can be higher than the existing loan’s rates. The most common concern is that refinancing might lead to increased monthly payments and a higher total interest cost over the life of the loan, as we illustrated in our earlier example showing a $300,000 mortgage.
Loan assumption: This option allows one spouse to take over the home’s current mortgage with its original terms (with the interest rate often being the most pivotal). If the existing mortgage had a lower interest rate than current market rates, the financial burden could be significantly less when compared to traditional refinancing.

Process and requirements

Refinancing: The spouse retaining the home must qualify for a new mortgage, which involves credit checks and financial assessments. The process includes closing costs and potentially other fees, and it results in a completely new mortgage agreement.
Loan assumption: The spouse assuming the loan must also qualify based on creditworthiness and financial stability. However, the process typically involves fewer administrative steps and lower costs than refinancing. Here again, not all loans are assumable, and the terms can vary based on the lender.

Impact on ownership and liability

Refinancing: This method effectively removes the departing spouse’s name from both the loan and the property title, which can provide a clean break in terms of financial and legal responsibilities.
Loan assumption: While it transfers the mortgage payment responsibility to the spouse who keeps the home, it’s vital to ensure that it also removes the other party’s legal obligation. In some cases, such as with a VA loan , the departing spouse might still be liable if the loan goes into default unless the assumption agreement explicitly states otherwise.

Suitability in different scenarios

Refinancing: May be more suitable if the remaining spouse can secure a mortgage with favorable terms, or if there is a need to cash out equity for the buyout.
Loan assumption: Ideal in situations where the existing mortgage has favorable terms compared to current market rates, and where the spouse assuming the loan can afford the payments and qualify for the mortgage on their own.

Equalization payments

When considering the costs of assuming a mortgage in a divorce, it’s essential to factor in any required equalization payments . In many divorce settlements, if one spouse is assuming the mortgage and keeping the residence, the other spouse may be owed an “ equalization ” for their share of the community interest in the property. This involves compensating them for their portion of the home’s existing equity.

To manage this equalization payment, options might include using personal savings, selling another asset, or even considering refinancing the home. The need for a substantial equalization payment can significantly influence the feasibility of assuming the mortgage. Incurring additional debt to cover this payment can impact your financial stability post-divorce.

Partner with professionals for proceeds and peace

The choice between home loan assumption and refinancing in the context of a divorce largely depends on these factors:

The circumstances of the couple
Each individual spouse’s financial situation
The terms of the existing mortgage
Current market conditions

As you consider which path to travel, it’s wise to consult with professional financial or legal advisors. They can help you make decisions that align with your long-term financial health and personal goals post-divorce. Expert guidance can also provide clarity and calm during what can be a very emotional and turbulent time.

If you decide to sell your marital home, or if you’re looking for a new home in a new location, HomeLight can connect you with a top agent in your market, including a Certified Real Estate Divorce Specialist (CDRE).

Header Source: (Roger Starnes Sr / Unsplash)

Richard Haddad

Managing Editor

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IMAGES

What Is Mortgage Assignment vs. Mortgage Assumption?
What Is The Difference Between Mortgage Assumption And Mortgage Assignment?
Deed of Assignment With Assumption of Mortgage
Mortgage Loan Assignment: The What, Why, and How Of It
Model Format of Assignment of Mortgage
Deed of Sale With Assumption of Mortgage

VIDEO

Mortgage Assignment
Modes of Charging Security
WANTED: MORTGAGE ASSIGNMENTS & AFFIDAVITS, BANK FORECLOSURE MERS LPS DOCx
The VA & FHA Mortgage Assumption Process with Assumption Solutions
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How to Make Money with Real Estate: The Ultimate Guide

COMMENTS

What Is Mortgage Assignment vs. Mortgage Assumption?
Few contemporary mortgage loan notes permit this form of assumption and assignment. Significance Until the 1970s, mortgage assumptions were common, while mortgage assignments were rare.
What Is Mortgage Assignment vs. Mortgage Assumption?
Mortgage Assignment. Mortgage assignments are often confused with another type of transaction called a subject-to agreement or a purchase subject to a mortgage. Simply put, a mortgage assignment occurs when one bank sells a loan to another. This happens relatively often, with investors selling off large groups of mortgages to be serviced by ...
Understanding the Assignment of Mortgages: What You Need To Know
The assignment of mortgage needs to include the following: The original information regarding the mortgage. Alternatively, it can include the county recorder office's identification numbers. The borrower's name. The mortgage loan's original amount. The date of the mortgage and when it was recorded.
Assumable Mortgage: What It Is and How It Works
Here are the steps needed to assume a mortgage: 1. Track down homes for sale that have assumable mortgages. This is more of an art than a science, especially since most real estate websites don't have filters to help you zero in on these homes. Below are some strategies you may want to try. 2.
Gaining a comprehensive understanding of mortgage assignment
Assignment of Mortgage vs. Assumption of Mortgage. Differentiating between assignment of mortgage and assumption of mortgage is important. This section will explain the key differences, where one party takes over the mortgage and liability, while the other party merely transfers the loan to a new lender.
What Is An Assumable Mortgage And How Does It Work?
A mortgage assumption occurs when a new borrower takes over an existing borrower's mortgage. This means that the new borrower becomes responsible for paying off the remaining loan balance over ...
What Is The Difference Between Mortgage Assumption And Mortgage Assignment?
While mortgage assumptions hold significant advantages over the more common mortgage reassignments, CEMA loans can simulate some of the benefits that are lost when you get a reassignment loan over a mortgage assumption, but you might have to make a decision between whether you value getting a lower interest rate or getting the benefits of a ...
How an Assumable Mortgage Works
When you assume a mortgage, you take over the homeowner's remaining principal balance. The current borrower has likely paid off a chunk of their mortgage. The home may have also increased in ...
Assumable Mortgage: What Is It, How Does It Work and ...
An assumable mortgage allows a home buyer to not just move into the seller's former house, but to step into the seller's loan, too. This means that the remaining balance, repayment schedule and ...
Understanding How Assignments of Mortgage Work
Mortgages are assigned using a document called an assignment of mortgage. This legally transfers the original lender's interest in the loan to the new company. After doing this, the original lender will no longer receive the payments of principal and interest. However, by assigning the loan the mortgage company will free up capital.
What You Should Know about Mortgage Assumption and Assignment ...
Mortgage assumption and assignment are concepts that Real Estate License examiners will expect you to know about. A mortgage assumption takes place when a new party takes over the obligations of another person's mortgage debt, and it usually requires the approval of the lender.
What Is An Assumable Mortgage?
An assumable mortgage works much the same as a traditional home loan, except the buyer is limited to financing through the seller's lender. Lenders must typically approve an assumable mortgage. If done without approval, sellers run the risk of having to pay the full remaining balance upfront.
What Are the Benefits of an Assumable Mortgage?
An assumable mortgage can provide several benefits for the buyer and the seller, depending on the situation. First, for the buyer, the seller's mortgage may offer a lower interest rate than the ...
What Is an Assumable Mortgage?
Assumable Mortgage: An assumable mortgage is a type of financing arrangement in which an outstanding mortgage and its terms can be transferred from the current owner to a buyer. By assuming the ...
Assumable mortgage: what it is and how it works
Assumption After Death. 30 - 60 Days. Completed package and all supporting documentation is received. An assumable mortgage allows a buyer to assume the rate, repayment period, current principal balance and other terms of the seller's existing mortgage rather than obtain a brand-new mortgage.
Is An Assumable Mortgage Right For You?
An assumable mortgage allows a buyer to take over the seller's mortgage. You still have to close the deal and take over the title — much like a traditional mortgage process — but when it's done, you take over the payments on a monthly basis. If you assume someone's mortgage, you're effectively taking over the mortgage from the seller.
What You Need to Know About a Mortgage Assumption
To apply for an assumption, you have to be able to show the lender that you have been given the legal rights to handle the property. In a divorce situation, the documentation that proves this is the: Executed divorce decree. The quit claim deed that accompanies the divorce decree. The mortgage lender will review a copy of the divorce decree.
What's the difference between a mortgage assignment and an ...
An assignment transfers all the original mortgagee's interest under the mortgage or deed of trust to the new bank. Generally, the mortgage or deed of trust is recorded shortly after the mortgagors sign it, and, if the mortgage is subsequently transferred, each assignment is recorded in the county land records.
Bank of America
A home loan assumption allows you as the buyer to accept responsibility for an existing debt secured by a mortgage on the home you're buying. The two processes available to suit your needs are Qualified Assumptions, and the Name Change and Title Transfer Requests. Compare and find the option that's right for you:
The Definition of Assignment & Assumption Agreement
A mortgage lender loans money to the borrower, and in exchange, the borrower agrees to repay the money and give the lender a lien on the house. The loan, the repayment with interest and the mortgage lien are consideration for the contract. ... Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will ...
Understanding an assignment and assumption agreement
An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.
Assignment and Assumption Agreement
An assignment and assumption agreement used to transfer the seller's contractual rights and obligations to the buyer. This agreement is delivered as an ancillary document in an asset purchase. This Standard Document has integrated notes with important explanations and drafting and negotiating tips.
Loan Assumption vs Refinance: Making the Best Choice in Divorce
The Garn-St. Germain Act. The Garn-St. Germain Act, enacted in 1982, can play a pivotal role in the assumption of mortgages during a divorce.Traditionally, mortgage assumption was a common practice, but this federal law allowed lenders to enforce "due on sale" or "due on transfer" clauses in their contracts, regardless of state laws. . Fortunately, the Act includes exceptions where ...