Assumption in mortgage terms refers to a situation where a new borrower takes over the obligation of the original loan, allowing them to continue making payments under the existing loan terms. This process is commonly found in FHA and VA loans, which often have more flexible assumption agreements compared to conventional loans. By allowing an assumption, lenders provide an opportunity for transferring the existing loan to another party without requiring a full refinancing process.
This is particularly advantageous for buyers who can benefit from potentially lower interest rates or specific terms associated with the original loan. It streamlines the process for both the seller and buyer since the original loan terms remain intact, making the transaction simpler and potentially more cost-effective for the new borrower within the confines of the existing agreement.
In this context, the choice highlighting the applicability specifically to FHA and VA loans underlines the types of loans that most commonly allow for an assumption; these government-backed loans often facilitate the transference of loans without the need for stricter new conditions or changes to the loan amount.