Loan Assumption Addendum
Definition and meaning
A Loan Assumption Addendum is a legal document that allows a buyer to assume the existing mortgage or loan obligations of the seller when purchasing a property. This addendum is typically attached to the Offer to Purchase and Contract, outlining the terms under which the buyer will take over the loan, including the remaining balance, interest rate, and responsibilities associated with the assumption.
How to complete a form
To complete the Loan Assumption Addendum, follow these steps:
- Fill in the property details, including address and description.
- Provide the names of the seller and buyer.
- Identify the type of existing loan to be assumed and note the applicable interest rates.
- Record the approximate unpaid principal balance and payment information.
- Ensure that both parties provide their contact information.
- All required signatures must be obtained, including those of entity buyers and sellers if applicable.
It is recommended to consult with a real estate attorney for guidance through the completion process.
Who should use this form
This form is primarily used by buyers who intend to purchase a property and assume the existing mortgage from the seller. It is also used by sellers who want to outline the terms of the loan assumption in the property transaction. This document is essential for any party involved in the sale of a home with an existing mortgage that is assumable.
Key components of the form
The Loan Assumption Addendum contains key details that are crucial for both the buyer and seller. Important components include:
- Property Details: The address and description of the property.
- Seller and Buyer Information: Names and contact details.
- Loan Information: Type of loan, interest rates, and balances.
- Obligations: Responsibilities of buyer and seller, including any costs associated with the assumption.
- Contingencies: Any conditions that must be met for the agreement to be valid.
Legal use and context
The Loan Assumption Addendum is used in real estate transactions when a buyer wishes to take over an existing loan. It outlines the legal obligations of the parties involved and ensures that the terms of the existing mortgage are honored. This document is necessary to protect both the buyer's and seller's interests and provides a clear understanding of what is expected throughout the transaction.
Benefits of using this form online
Utilizing the Loan Assumption Addendum online has several benefits:
- Accessibility: Easily accessible from anywhere, allowing for convenient completion.
- Cost-Effective: Often available at a lower cost than traditional legal services.
- Time-Saving: Instant downloads save time compared to requesting physical documents.
- Guidance: Many online forms come with instructions, ensuring clarity in completion.
Form popularity
FAQ
An assumable mortgage works much the same as a traditional home loan, except the buyer is limited to financing through the seller's lender. Lenders must approve an assumable mortgage. If done without approval, sellers run the risk of having to pay the full remaining balance upfront.
You will need to complete an application, provide documents, and meet the lender's credit, income, and financial requirements to get the loan assumption approved. Lenders often have stricter mortgage underwriting standards for loan assumptions than they do for new loans.
When a buyer buys property and assumes a mortgage, the buyer becomes primarily liable for the debt and the seller becomes secondarily liable for the debt. "Assume" means the buyer takes on liability, and the seller is no longer primarily liable. "Subject to" means the seller is not released from responsibility.
Although the buyer agrees to make payments on the home loan during a simple assumption, the seller still remains responsible for the mortgage. Any delinquencies or defaults incurred by the buyer will also appear on the credit report of the the seller.
A loan assumption agreement is an agreement between a lender, original borrower, and a new borrower, where the new borrower agrees to assume responsibility for the debt owed by original borrower. These agreements are commonly seen in mortgages and real estate.
Loan assumption can be a powerful enticement for these buyers as they shop for houses, because it would allow them to pay lower interest rates even as the housing market becomes more expensive.
Keep in mind that the average loan assumption takes anywhere from 45-90 days to complete. The more issues there are with underwriting, the longer you'll have to wait to finalize your agreement. Do yourself a favor and get the necessary criteria organized in advance.
In a properly done assumption, the new borrower must jump through some of the same hoops it would take to qualify for a new loan. The loan's servicer requests the borrower's credit report, plus financial and employment information. Finally, the lender releases the original borrower's liability for the debt.