What does it mean for a mortgage to be assumable?

An assumable mortgage allows a new buyer to legally take possession of the seller’s existing loan instead of obtaining their own financing to fund the purchase of the property.

Is a due-on-sale clause the same as an acceleration clause?

Due-on-sale clauses – also called alienation clauses – are a type of acceleration clause . Similar to due-on-sale clauses, acceleration clauses allow your mortgage lender to demand full repayment of your home loan. The difference is that a due-on-sale clause is triggered when you sell or transfer your property without the lender’s consent, whereas an acceleration clause goes into effect when you miss mortgage payments , file for bankruptcy or fail to fulfill your loan requirements in some other way.

Do all mortgages have a due-on-sale clause?

Although the majority of mortgages contain due-on-sale clauses, there are still some mortgages that are assumable. Such mortgages include the Department of Veterans Affairs (VA), Federal Housing Administration (FHA) and United States Department of Agriculture (USDA) loans. Even though these types of loans are assumable, prospective buyers must still qualify for the loan.

If a mortgage contains a due-on-sale clause, can the borrower still pay off the mortgage early?

Yes. A due-on-sale clause does not impact a borrower’s ability to pay off their mortgage early. However, before doing so, you should check to ensure that your lender doesn’t charge prepayment penalties .

What happens if a borrower sells or transfers the property without informing their lender?

As mentioned, lenders are notified when properties are transferred to another party, so the lender will likely exercise their acceleration rights and can begin foreclosure proceedings. Therefore, borrowers should not try to avoid triggering the due-on-sale clause by transferring the property behind the lender’s back. If they do, it’s likely that the new owner will lose the property through foreclosure.

Are there circumstances in which the lender would not invoke the due-on-sale clause?

Lenders are less likely to invoke the due-on-sale clause when they fear that they’ll be unable to recover the funds loaned to the borrower. Therefore, lenders may allow the mortgage to be assumed by the prospective buyer if the housing market is weak, and the lender believes doing so will increase the chances that the loan will be repaid.

What Is A Due-On-Sale Clause?