Overview of Assumptions

A sample proposal letter offered by a buyer to a seller, requesting an assumption of the seller's existing mortgage, is provided.

An assumption allows another person to take over responsibility for and payment of a mortgage loan. This person fully, officially and legally assumes the mortgage loan obligation. This eliminates the need for a purchase loan application, because the seller's current mortgage loan remains in place.

Financially speaking, the only change is the name on the mortgage loan's promissory note. But this official change is important. Informal assumptions, by contrast, are very dangerous and should be avoided.

In a typical assumption transaction, the buyer will assume the current mortgage loan but immediately compensate the seller for the difference between the loan amount and purchase price.

For example, Emily is selling her house for $100,000. It has an assumable ARM loan with a balance of $80,000 at a very low interest rate. If the buyers are qualified, they can offer Emily a cash down payment of $20,000 and then assume the $80,000 mortgage.

$100,000

Sales price of home

- $80,000

Current mortgage that buyer will assume

= $20,000

Balance of sales price to be paid as down payment

Aside from this alternative way of obtaining financing, the rest of this transaction proceeds as normal. The price and closing procedures are basically unaffected. The assumption method is actually simpler and easier than standard mortgage loans.

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Real Estate Planning And Prosperity

Real Estate Planning And Prosperity

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