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ABA Family Legal Guide

Buying and Selling a Home

Financing a Home Purchase

Key Provisions of the Loan Documents

What is an assumable mortgage?

An assumable mortgage allows you to transfer your existing mortgage debt to the buyer of your home. The new owner would "assume" or take over your mortgage loan and pay you the difference between the amount you still owe and the agreed-upon sale price. Most lenders include a "due-on-sale" clause in the mortgage, which prohibits a buyer from assuming the existing mortgage. However, some sellers still have assumable mortgages. In addition, some lenders will allow a mortgage to be assumed by charging a fee or adjusting the interest rate on the assumed mortgage.

If the interest rate is attractive, a buyer should explore the possibility of assuming the existing loan. Prior to assuming a mortgage, a prospective homebuyer should obtain a written statement from the original lender stating

  • the amount still owed on the loan;
  • that there are currently no defaults under the loan;
  • the rate of interest for the remainder of the loan;
  • the length of the repayment period remaining; and
  • whether the lender has the right to call in the loan (demand payment of the entire amount), change any of the existing terms, or prevent future assumption by another buyer.

    Before the loan can be assumed, the lender may require the buyer to go through the lender's normal loan-application process so that the lender is sure the buyer is creditworthy. The particular form of loan-assumption agreement will vary depending upon your location.

    • American Bar Association Family Legal Guide
    Copyright © 2004 American Bar Association
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