Glossary

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Assumable Mortgage

A mortgage that may be “taken over” by a qualified third party. Most assumable mortgages are government-backed products like VA, FHA and USDA (Rural Housing) home loans.

Assuming a home loan can create several advantages. First, it allows the buyer to sidestep most of the settlement charges associated with getting a new mortgage. FHA allows (but does not require) lenders to charge a $500 assumption fee and a fee for the credit report. VA allows lenders a $255 processing fee and a $45 closing fee, and the agency charges the borrower a .5 percent assumption fee. The main advantage of assuming a loan, however, is that when interest rates are rising, assuming a mortgage lets the buyer keep the seller’s low mortgage rate. The advantage to the seller is that it makes his or her property more appealing to buyers.

Buyers who assume VA mortgages are not required to be VA-eligible.

Government-backed mortgages should not be assumed without the approval of the agencies involved.

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