Assumption Clause
Definition and meaning of Assumption Clause in real estate.
An assumption clause is a provision in a mortgage contract that permits a buyer to take over the seller's existing loan terms and balance when purchasing the home.
In more detail
This clause outlines the conditions under which the lender will allow the mortgage to be transferred, such as creditworthiness requirements and processing fees. The presence of this clause is critical because, without it, the lender can invoke the due-on-sale clause, which demands immediate repayment of the entire loan balance when the property changes hands.
Government-backed mortgages, like those from the Federal Housing Administration or the Department of Veterans Affairs, must contain assumption clauses by law. Conventional mortgages, however, rarely include this option and typically restrict assumptions.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Found in | Promissory notes and mortgage agreements |
| Common in | FHA and VA loans |
| Main benefit | Preserves low interest rates for buyers |
A seller advertises their home as having a transferable loan because their mortgage paperwork includes an assumption clause allowing qualified buyers to adopt the interest rate.
Frequently asked questions
Where can I find the assumption clause in my mortgage?
The assumption clause is typically located in the mortgage contract or deed of trust, often listed under a section detailing the transfer of the property.
Can a lender deny an assumption even if the clause is present?
Yes, the clause usually specifies that the assumption is subject to the lender's approval of the new buyer's creditworthiness and financial stability.