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A Definition of a Mortgage Assumption

A Definition of a Mortgage Assumption thumbnail
A mortgage assumption isn't as simple a transaction as it may sound.

A mortgage assumption is a real estate transaction that takes place between a current homeowner with a mortgage and a buyer who is interested in the seller's property. During the transaction, the buyer attempts to take over the seller's mortgage.

  1. Definition

    • A mortgage assumption occurs when a person purchases a home from a homeowner and agrees to take over the existing mortgage debt on the house.This transaction holds both the buyer and seller liable for the existing mortgage, even after the house is sold. During the transaction, the buyer pays the seller whatever equity the seller has in the house, and then assumes the remaining balance on the mortgage.

    Seller Release

    • If the lender (bank, credit union or mortgage company) agrees, the seller can be released from the debt after the mortgage assumption is completed. This must be worked out with the lender ahead of time. Otherwise, the seller will remain responsible for his mortgage as well as the new buyer.

    Considerations

    • Most mortgage lenders do not allow for mortgage assumptions to take place. Today's mortgages contain a document called the "due on sale clause," which states that the full balance of the mortgage must be remitted as payment to the lender before the transfer of the property can take place.

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References

  • Photo Credit Sold Home For Sale Sign on Burst image by Andy Dean from Fotolia.com

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