Assumption of Mortgage Law and Legal Definition
Assumption of mortgage is an agreement under which the buyer of a property takes over the seller's liability for payment of an existing mortgage on the property. The seller remains liable to the mortgage lender unless the lender agrees to release him in writing. Before a seller is relieved of liability under the existing mortgage, the lender accepts the transfer of liability for payment of the note.
Mortgage assumption is done normally to save the closing costs or the higher interest rates of a new mortgage. It is also known as simple assumption. There are two types of mortgage assumptions, qualifying and non qualifying assumption
Qualifying assumption: In qualifying assumption, the new borrower has to obtain approval to assume the loan from the current lender. He has to provide income and credit requirements. If the borrower's credit and income do not meet the minimum stipulations of the lender, s/he is not allowed to assume the loan.
Non qualifying assumption: Non qualifying assumption is more commonly referred to as seller financing. In this scenario, a borrower can assume the mortgage payment by paying the difference of the equity in the property to the seller and the seller will finance the remaining amount.