What Is a Loan Assumption Contingency in Real Estate?

✅ How a Loan Assumption Contingency Works

When assuming a mortgage, the buyer steps into the seller’s existing loan with:

• The same interest rate
• The same remaining loan balance
• The same amortization schedule

A loan assumption contingency protects buyers if:

• The lender denies the assumption request
• Assumption requirements are stricter than expected
• Fees or equity requirements exceed the buyer’s budget

If assumption fails, the buyer may cancel without losing their earnest money deposit.

💡 Why Loan Assumptions Are Popular in 2024–2025

Buyers are increasingly interested in assuming mortgages with locked-in rates from 2020–2022:

• FHA and VA loans often have rates between 2%–3.5%
• New loans may be 6%–8%, doubling payments
• A lower rate can save buyers hundreds per month

This makes assumption contingencies extremely valuable — and highly relevant for FSBO sellers.

📍 FSBO Tip: Verify If Your Loan Is Assumable

Most conventional loans cannot be assumed.

Loans that are typically assumable include:

• FHA loans — assumable with lender approval
• VA loans — assumable by both veterans and non-veterans
• USDA loans — sometimes assumable

FSBO sellers should contact their loan servicer to confirm assumability before marketing it as a selling benefit.

⚠️ Risks for Sellers

Loan assumptions can create complications. Sellers should be aware of:

• Long lender approval timeframes
• Buyer delays that impact closing
• Risk the buyer cannot cover the equity gap
• VA loan “entitlement lock,” limiting future VA loan use

If you want stronger protection, consider pairing this with a kick-out clause.

📚 Related Contingency Guides

• Financing Contingency
• Appraisal Contingency
• Inspection Contingency
• Appraisal Gap Contingency
• Title Contingency

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