Mortgage balance
The current principal balance determines how much debt the buyer may assume and how much equity must be funded at closing.
Paragraph 19 · Addendum D
A low mortgage rate has value only if the lender approves the assumption.
Addendum D addresses a buyer’s proposed assumption of the seller’s existing mortgage. The balance, rate and payment matter—but approval, closing funds and the seller’s written release from liability can determine whether the structure is truly workable.
What Addendum D does
It makes the existing loan part of the negotiated purchase structure.
The rider identifies the approximate mortgage balance and whether the interest rate is fixed or variable. It also requires lender information about the principal balance, payment method, interest rate and status of the mortgage so the parties can compare the actual loan with the contract assumptions.
When lender approval is required, the buyer must promptly obtain, complete and return the application. The rider also allocates assumption charges and addresses what may happen if the lender rejects the buyer or imposes terms outside the negotiated limits.
Six moving parts
The note’s interest rate is only one part of the assumption.
The parties need an accurate loan picture and a realistic lender-approval plan before relying on the expected savings.
Rate structure
Confirm whether the rate is fixed or variable and whether the existing documents permit a change when title transfers.
Lender statement
Verify the balance, payment, interest rate, loan status, escrow information and any delinquency directly with the mortgage holder or servicer.
Buyer approval
The buyer may need to satisfy the lender’s credit, income, occupancy and underwriting requirements before the assumption is approved.
Assumption charges
The contract should state who pays the lender’s charges and the maximum amount the buyer has agreed to absorb. The current rider uses 1% of the assumed amount when that maximum is left blank.
Cash-to-close gap
The buyer must fund the difference between the price and assumed balance, plus closing expenses, through cash or separately approved financing.
Two separate results2buyer assumption + seller release
The seller’s continuing exposure
Loan approval does not automatically prove release from liability.
The lender may approve the buyer to assume the debt, but the seller should still obtain and review the lender’s written release documents. Until the lender actually releases the original borrower, the seller may remain exposed if the buyer later defaults.
For a VA-guaranteed mortgage, release from liability and substitution or restoration of the seller’s VA entitlement are related but distinct issues. A completed assumption without an approved substitution can leave the seller’s entitlement connected to the loan until it is paid in full.
A crucial distinction
Assumption is not the same as taking title “subject to” a mortgage.
Both structures leave an existing lien on the property, but the legal relationship with the lender can be dramatically different.
The buyer accepts the loan obligation
The lender or servicer reviews the transaction and documents the buyer’s agreement to become responsible for the existing debt. The seller must still confirm whether the approval includes a written release.
Title changes while the original note remains
The buyer acquires the property subject to the mortgage without formally assuming the seller’s note. The seller ordinarily remains the borrower, and an unapproved transfer may allow the lender to enforce a due-on-sale clause.
Before relying on the assumption
Start with the servicer, then verify the documents.
Assumptions can take time. Early requests, accurate applications and clear contract dates help prevent the existing loan from becoming a last-minute closing surprise.
Buyer review
- Confirm in writing that the particular loan is eligible for assumption.
- Request the full payment, rate, maturity, escrow and loan-status information.
- Calculate the cash required above the assumed principal balance.
- Ask whether secondary financing is permitted and how it affects approval.
- Budget for lender charges, closing costs, insurance and escrow adjustments.
- Complete every lender request promptly and preserve proof of delivery.
Seller preparation
- Authorize the lender or servicer to release necessary loan information.
- Continue making payments and protecting the collateral through closing.
- Do not treat preliminary buyer approval as a final release of liability.
- Review the written assumption and release documents before transferring title.
- For VA financing, address release of liability and entitlement restoration separately.
- Confirm what happens if the lender’s rate, charges or conditions exceed the contract limits.
“The buyer can just start making the seller’s payments.”
Common misconception
Payment access does not change who owes the debt.
Sending money to the servicer does not by itself make the buyer the approved borrower, release the seller or prevent enforcement of a due-on-sale clause. A true assumption is documented through the lender’s required process.
The parties should not close based on a verbal representation that the loan is assumable. They should verify eligibility, approval, final terms, seller release and—when applicable—VA entitlement treatment in writing.