Q: Which of the following is true about the assumption of a mortgage
A: When a buyer assumes an existing mortgage, they take legal responsibility for the remaining debt and agree to make future payments. In many cases, the original borrower may remain secondarily liable unless the lender formally releases them through a novation agreement.
Q: Does the lender need to approve a mortgage assumption
A: Yes. Most conventional mortgages include a due on sale clause that requires lender approval before the loan can be assumed. Government backed loans such as FHA and VA mortgages are more commonly assumable, but still require lender consent and qualification of the new borrower.
Q: What is the difference between assumption and subject to
A: In an assumption, the buyer becomes legally obligated to the lender and often seeks a release of liability for the seller. In a subject to transaction, the buyer takes possession of the property and makes payments but does not assume legal liability to the lender. The original borrower remains fully liable in a subject to arrangement.
Q: Are there financial benefits to assuming a mortgage
A: Yes. Assuming a mortgage may allow the buyer to take over a loan with a lower interest rate or favorable terms compared to current market rates. It can also reduce closing costs since the loan does not need to be originated anew.
Q: Does the buyer need to qualify for the loan when assuming a mortgage
A: Yes. Lenders typically require the assuming party to meet credit, income, and debt to income ratio standards before approving the assumption. This protects the lender and ensures the new borrower can fulfill the payment obligation.
Q: Does Certilyst cover mortgage assumption on real estate exams
A: Yes. Certilyst includes key real estate finance concepts such as mortgage assumption, due on sale clauses, novation, and loan types in its California and national real estate licensing exam preparation materials. Our questions align with official state exam content outlines to ensure comprehensive coverage.
Prepare with confidence for your real estate licensing exam at Certilyst Real Estate Exam Prep.
For official regulations and guidelines refer to the California Department of Real Estate at www.dre.ca.gov or your state’s real estate commission.