Definition:
An assumption fee is a charge paid by a buyer to a lender when taking over a seller’s existing mortgage.

Example:
If Josh decides to buy Maria’s home by assuming her mortgage with a lower interest rate, the lender might charge a $500 assumption fee to process the transfer of responsibility for the loan.

Explanation:
In real estate, assumption fees cover the lender’s administrative costs when a buyer takes over a seller’s existing mortgage. The fee compensates the lender for time spent reviewing the buyer's financial qualifications, updating loan documentation, and formally transferring loan obligations to the new borrower. Assumption fees usually range from a few hundred to around a thousand dollars, depending on the lender and loan type. Buyers typically pay this fee, though it's negotiable in some transactions.

Importance:
Understanding assumption fees is essential for both buyers and sellers. Buyers should consider this cost when evaluating mortgage assumption, weighing potential savings from lower interest rates against administrative fees. For sellers, clearly communicating this fee helps maintain transparency during negotiations, preventing surprises.

Ultimately, assumption fees are a relatively minor expense but should still factor into a buyer's overall financial calculations. Being aware of this fee ensures smooth transactions and informed financial decisions.