Assumption fee

A fee charged on a buyer for taking over a mortgage from the seller of the property. The buyer agrees to make monthly payments for the assumed mortgage.

What is an assumption fee?

An assumption fee is a charge that a buyer pays to assume an existing mortgage on a property. The fee is paid to the lender to transfer the mortgage from the seller to the buyer. It covers the lender's administrative costs associated with transferring the mortgage from the seller to the buyer. The fee is usually a percentage of the outstanding mortgage balance, ranging from 0.5% to 1% of the loan amount. It is paid at closing and is included in the buyer's closing costs.

How much is an assumption fee?

The exact amount of the assumption fee can vary depending on the lender and the specific mortgage being assumed, but it typically falls in the range of 0.5% to 1% of the loan amount. For example, if a mortgage being assumed has an outstanding balance of $300,000, the assumption fee could range from $1,500 to $3,000. 

The assumption fee is typically paid at the closing of the real estate transaction and is included in the buyer's closing costs. Note that the assumption fee is separate from other closing costs, such as appraisal fees, title insurance, and attorney fees, which the buyer may also be responsible for paying.

Can the seller pay the assumption fee?

While it is possible for the seller to pay the assumption fee, it is not common. Typically, the buyer is responsible for paying the assumption fee as part of their closing costs. However, in some cases, the seller may agree to pay the assumption fee as part of the negotiations for the sale of the property. 

If the seller does agree to pay the assumption fee, this will need to be documented in the real estate contract and agreed upon by all parties involved. Additionally, if the seller pays the assumption fee, this will reduce the amount of cash they receive from the sale of the property.

Is an assumption fee tax-deductible?

The assumption fee itself is not typically tax-deductible, as it is considered a non-deductible closing cost. However, the interest paid on an assumed mortgage may be tax-deductible if the borrower meets certain qualifications, such as using the property as their primary residence and meeting the Internal Revenue Service's (IRS) guidelines for mortgage interest deductions.

Can an assumption fee be waived?

An assumption fee may be waived in some cases, depending on the terms of the mortgage and the lender's policies. However, the decision to waive the fee will be at the lender's discretion and is not guaranteed. 

Some lenders may have the option to waive the fee under certain circumstances, such as if the buyer has excellent credit or a history of timely mortgage payments. 

Additionally, even if the lender does have a policy for waiving the fee, the borrower may be required to accept less favorable terms, such as a higher interest rate or other fees. The best way to determine if an assumption fee can be waived is to consult with the lender and review the terms of the mortgage agreement.

Conclusion

An assumption fee is an important aspect of mortgage assumptions that buyers and sellers should be aware of. Buyers can make an informed decision by consulting with the lender and reviewing the mortgage agreement, and potentially saving money at closing. Understanding the assumption fee can help buyers and sellers navigate the process with ease and confidence.