An assumable mortgage is one in which the lender (the mortgage company) has included a provision or clause which stipulates that the mortgage may be assumed by a third party. Typically, this third party would be the person who is purchasing your home from you, the seller.
If the mortgage is not assumable, there will be a corresponding provision or clause stating that the mortgage is not assumable. Whether the mortgage is assumable or not, there will be a clause which states that it is either assumable or not assumable.
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What Does The Assumable Clause Look Like?
The typical assumable clause will read like this:
Transfer of Property. If all or any part of the Property or any interest in it is sold or transferred without the Lender's prior consent, the Lender may require immediate payment in full of the home loan.
What this provision is saying is that the mortgage is assumable if the Lender is notified in advance of the transfer of interest in the property and has consented to the transfer. There is a presumption that the Lenders consent cannot be unreasonably withheld. If the buyer meets the Lenders credit requirements, then there is a presumption that the buyer will be approved as the new mortgagee and will assume the mortgage.
Bear in mind that there can be variations of the above language. So, you should consult with the current mortgage holder and/or an attorney in order to definitively determine if the mortgage in question is assumable.
One of the big advantages of an FHA mortgage is that FHA mortgages are assumable. And an assumable mortgage might be a selling point if you at some point decide to sell your home.
Understand how an assumable mortgage can simplify your home financing process. For further reading, see our guide on delayed financing, get an example of a mortgage recast, learn about cash offer financing, and review the details of the FHA flip rule waiver.