What is Assumption Fee?
The Short Answer
Assumption Fee explained simply
An assumption fee is a charge from a lender when a new buyer takes over an existing loan. This fee covers the administrative costs and risk assessment involved in transferring the loan responsibility from the original borrower to the new one. It is common in real estate transactions where the buyer assumes the seller’s mortgage.
Real-World Example
Real Estate Loan Assumption
Imagine Sarah is selling her house to Tom. Sarah has an existing mortgage with a great interest rate. Tom wants to take over Sarah’s mortgage instead of getting a new one. The bank charges Tom an assumption fee of 1% of the outstanding loan balance to process the transfer and assess Tom’s creditworthiness.
Why this matters
Understanding assumption fees is important because it affects the total cost of a business or property acquisition. It can be a significant expense that needs to be factored into the deal. Knowing about this fee helps you negotiate better and avoid surprises during the closing process.
Always ask the lender about any assumption fees early in the process. It can impact your overall deal structure and cash flow.
Always ask the lender about any assumption fees early in the process. It can impact your overall deal structure and cash flow.
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