Assumable Loan

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Assumable Loan

Loans that can be transferred to a new owner if the property is sold are known as an assumable loan (aka – assumable mortgage). Of course, there must be a provision in the seller’s loan documents allowing this, or the lender must agree to add one. In addition, the lender holding the current loan, would have to approve of the person or entity assuming the mortgage.

The assumption of the mortgage is the agreement by a buyer to assume the liability under an existing not secured by a mortgage or deed of trust. The lender usually must approve the new debtor in order to release the existing debtor from liability. Assumption arrangements can be beneficial to buyers in markets where interest rates are climbing and, even if the buyer could get financing, a new mortgage would be at a higher rate than the assumed mortgage. However, sellers are not necessarily off the hook for the loan even after the assumption is approved and finalized. In some instances, if the buyer defaults on the assumed loan the lender can come after the seller for any amount that it is unable to collect from the buyer. Therefore, it is imperative that sellers release their liability at the time of assumption.

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