The assumption fee is the charge paid by the buyer who assumes a mortgage on a property. This fee most commonly occurs when someone buys a property that has not been completely paid off to the bank yet. While the buyer becomes liable for payments, the original seller still retains secondary liability, unless specifically released by the buyer in writing.

Assumption Fee: Everything You Need to Know

When you buy a mortgage from someone else, the assumption fee is exactly what it sounds like, the fee you pay on that assumption. This fee, imposed on the person buying the mortgage, is essentially meant to cover all the necessary paperwork required to legally transfer ownership of a mortgage to a new person.

The fees imposed on the buyer come from a variety of different sources. The processing fees and expenses are a given, but the buyer is also accountable for application fees and the lender's attorney fees. The assumption fee does have a cap for the buyer, though, as it can't exceed more than one percent of the existing loan balance as of the closing date.

Pros and Cons of Loan Assumptions

The availability of credit is not as widespread as it used to be in the in the commercial real estate market according to the Mortgage Bankers Association. Since financing commercial real estate is so tough on its own, loan assumptions have become an attractive alternative.

With a loan assumption, you don't have to worry about starting payments on a property from scratch. You simply pick up where the previous owner left off under the same terms. Before you go down this route, however, you need to be familiar with all the advantages and disadvantages that come with it.

Loan assumptions also save the buyer quite a bit of time with the overall exchange. They can be fully documented and approved in less than a month. Meanwhile, a new loan can take up to several months to finalize. Not only does a new loan take longer, but it requires a whole lot more paperwork, which leads to increased administrative and filing fees.

There are some cons too, however, especially for the buyer. Even with pre-negotiated assumption rights, sellers can still drastically alter some aspects of the deal, as well as rigorously scrutinize any potential buyer's financial capabilities. This can lead to increased interest rates and stricter oversight, among other things. The overall length of the process can increase too, according to the seller's difficulties.

What is Assumable Mortgage?

Assumable mortgage is a mortgage loan that can be taken over by someone else with the same rates and terms as the original loan. This is especially useful if the seller of a property got a loan that you won't be able to match in the current housing market. As interest rates continue to rise, assumptions become more and more popular to buyers.

Even the fees for assumptions aren't as hefty as new loans. There are a few ways that the fees associated with assumption differ from the costs of a new loan:

  • Assumption fees don't include incidental costs on the part of the lender.
  • All fees will normally need to be paid at closing.
  • You won't need an appraisal in most cases, and taking on a mortgage typically doesn't affect your credit.

You need to be careful, however, as some buyers will try to trap you with appealing interest rates while owing more on their mortgage than the property is actually worth. The seller could also be a few months late on loan payments. Most lenders will require the missed payments to be covered by the time of assumption, which puts enormous pressure on buyers. Remember, appraisals aren't necessarily required, but they're always a good idea.

Are Mortgage Assumptions a Good Deal?

Mortgage assumptions are a generally a good deal in cases where the assumed interest rate is lower than something you'd find on the current market. The settlement costs for a mortgage assumption are also significantly reduced. You don't hear much about assumptions when the market rates are low, so it can be inferred that they really only matter in terms of interest rates.

Sellers aren't offering assumptions out of the goodness of their hearts, however. They still want to make a profit too, so you can expect some additional costs in there. Typically, the seller makes the house cost more as a whole.

If you need help with assumption fees and mortgage assumptions in general, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.