What Is Mortgage Loan Assumption?

Assuming a mortgage means taking over the house--and the payments.

A mortgage loan assumption allows an individual to take over another individual's mortgage loan. This prevents the buyer from having to take out a mortgage loan of his own, as he can simply assume responsibility for someone else's monthly mortgage payments.

Benefits

Mortgage assumptions allow those without good credit or a significant down payment to become homeowners. They can also help homeowners avoid foreclosure if they cannot afford their house payments yet cannot sell their homes. By assuming a mortgage, a consumer can take advantage of the seller's original interest rate.

Considerations

Mortgage lenders lose money when homeowners allow other individuals to assume their loans. They not only lose the lending fees associated with extending a new home loan, but the new owner may be more likely to stop making payments. Only government-backed mortgages, such as FHA and VA loans, allow mortgage assumptions.

Warning

Most mortgage loans contain a "due on sale" clause. If you allow a buyer to assume your mortgage "under the table" without notifying your lender and your lender discovers the transaction, it has the legal right to demand full payment of the loan immediately. If you cannot repay the mortgage, your lender can foreclose on the property--severely damaging your credit rating.

References

• The Mortgage Professor's Web Site: Are Mortgage Assumptions a Good Deal?
• Bankrate: Will Assumable Mortgage Solve Crisis?

Resources

• U.S. Department of Housing and Urban Development: Assumptions Frequently Asked Questions
• HGTV Frontdoor: Guide to Mortgage Assumptions