Definition:
An assumption occurs when a homebuyer takes over the seller’s existing mortgage, assuming responsibility for the loan’s payments and obligations.

Example:
Suppose Laura has a home with a mortgage balance of $200,000 at an attractive 3% interest rate. If Ben buys her house and "assumes" Laura’s mortgage, he takes over the remaining payments at the existing terms rather than getting a new loan.

Explanation:
In real estate, an assumption transfers a mortgage from the current homeowner to the buyer, typically as part of a property sale. This allows the buyer to benefit from existing loan terms, especially advantageous if current interest rates are higher than the existing mortgage. To assume a mortgage, the buyer must meet the lender's credit and income qualifications. Once the assumption is complete, the buyer becomes legally responsible for repayment of the remaining mortgage balance.

Some mortgages explicitly allow assumption, particularly government-backed loans like FHA or VA loans. Others may restrict or prohibit assumption altogether.

Importance:
Mortgage assumption can be a significant financial advantage, allowing buyers to secure lower interest rates, thus saving money over the loan's lifetime. For sellers, offering a mortgage assumption can increase their property's attractiveness, especially during periods of rising interest rates. However, sellers should confirm they're released from future obligations once the loan transfers to avoid liability if the new borrower defaults.

Understanding mortgage assumptions helps buyers leverage favorable loan conditions, while sellers can strategically use assumptions to enhance their property's market appeal and facilitate quicker, smoother transactions.