Loan assumption

Loan assumption happens when a buyer takes over the mortgage from a seller when they purchase the seller’s home. The buyer takes over the remaining balance owed on the seller’s mortgage, on the original loan terms—for example, the interest rate and the remaining length of the mortgage. A loan assumption might make financial sense when new mortgages are being offered at higher interest rates than when the seller originally took out their mortgage.

The difference between the home’s sale price and the balance on the assumed loan equals the amount the buyer needs to pay, either out of pocket or by taking out their own mortgage loan.

To take over the mortgage, the homebuyer needs to qualify for the loan assumption. Qualifying is usually based on a review of the buyer’s credit and income, similar to qualifying for a new mortgage.

Loan assumption could also apply when you receive the title to a property that has a mortgage – for example, after a death or divorce.