Definition
Loan assumption is when a buyer takes over the seller's existing mortgage. This allows them to avoid getting a new loan and can be beneficial if the seller's interest rate is lower than the current market rates.
Understanding Loan Assumption
Loan assumption occurs when a homebuyer takes over the seller's existing mortgage. It typically arises during the home buying process when the current mortgage rate is favorable. The buyer must qualify with the lender to assume the loan. Example: If a seller's mortgage balance is $200,000 at a 3% interest rate, the buyer steps into that payment plan instead of taking a new loan. It's not an automatic process; lender approval is required. It doesn't mean the buyer avoids closing costs or other fees. Loan assumption can be beneficial in stable rate environments, but it involves specific steps and requirements that need careful understanding.
