What Is Assumption?

In real estate, assumption or mortgage assumption is the process of transferring the balance, as well as terms, of an existing mortgage to a person or group of persons who are interested and are willing to purchase a property that is currently financed through a bank or private lender. All types of mortgages are assumable, including those insured by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). In fact, one out of six assumed mortgages in the United States are mortgages that are guaranteed by the FHA, VA, and the Department of Agriculture (USDA).

How does a mortgage assumption work?

It is a common misconception among property owners that when they buy a property from a developer through financing or loan from a bank, they remain indebted to the developer. The truth is that the buyer now owes money from the bank with their property as a collateral or security against the loan.

A lot of homeowners also think that because their house is part of the debt agreement, they cannot sell it until they pay up all their debt.

The truth of the matter is that a homeowner who has bought a real estate property through financing can sell the house and transfer the financial obligation to the buyer. This means that the buyer will agree to pay the remaining balance of the mortgage granting that they meet certain conditions.

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Once the seller sees that all conditions are met, the buyer will pay the seller a certain amount for all the payments they have made for the loan.

It is also important to check whether there is a stipulation in the contract between the original owner and the creditor that says the creditor needs to give their permission before the property is sold to another buyer.

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