Loan Assumption Addendum

What Is a Loan Assumption Addendum?

A loan assumption addendum is a legal document that is added to an existing contract. This addendum is essentially an agreement that changes the terms of an initial loan contract. It enables a third party, usually a buyer in a real estate transaction, to take on an existing loan under the agreed-upon terms. This includes taking on the responsibility for repayment and any associated legal obligations.

Significance of TREC loan assumption addendum

The Texas Real Estate Commission (TREC) loan assumption addendum is an essential document for individuals engaging in real estate transactions in Texas. This form allows a buyer to take over the payments and responsibilities of the seller's existing mortgage. This can be advantageous for both parties as it negates the need for the buyer to secure new financing while potentially allowing the seller to avoid penalties associated with mortgage prepayment.

How to Fill Out Loan Assumption Addendum Texas

Knowing how to fill out the loan assumption addendum form correctly is crucial to avoid potential complications. Here are the essential steps:

1. Begin with the 'Address of property' section. Here, input the exact postal address of the property in question. Include all relevant details like street name, city, state, and ZIP code.
2. Move to the 'Credit Approval' section. You need to check the box that certifies that the assumption receives credit approval from the lender. This approval should have been granted before the contract was entered.
3. In the 'Assumption' section, input the details related to the loan to be assumed. This includes the original loan amount, interest rate, and monthly payment amount.
4. Next, move to the 'Loan Assumption Terms' section. Here, review and understand the terms of loan assumption which includes the payment schedule and the total expected repayment amount.
5. On reaching the section of 'Consent by Noteholder', if the noteholder consents and agrees with the assumption terms and conditions, he/she should write their name and put his/her signature on the provided lines.
6. For the 'Seller’s Liens' section, summarize and list any existing liens on the property that the seller has.
7. Under 'Tax and Insurance Escrow', detail any agreements on tax and insurance escrow that relates to the property.
8. Now, proceed to the signature section. Here, the buyer and seller should input his/her full legal name on the designated line and electronically sign his/her signature.
9. Once you have filled all the necessary fields, review the form to ensure all provided information is accurate.
10. Based on your preference, download, print, or share the form directly from PDFliner.

Consider using a loan assumption addendum

There are several scenarios in which this addendum can be advantageous.

• Buyer Has Difficulty Obtaining New Financing: If the prospective buyer experiences challenges securing a mortgage, a loan assumption addendum can provide a suitable alternative. This allows them to take on the existing loan and proceed with the purchase.
• Current Market Rate Higher Than Existing Loan: When current mortgage rates are higher than those of an existing loan, the buyer could utilize a loan assumption addendum to take advantage of the lower rate. 
• The Existing Loan Has Favorable Terms: If a seller's existing loan features favorable terms, for example, a shorter repayment period, the buyer might decide to assume it instead of seeking new financing.
• Avoidance of Prepayment Penalties: Sometimes, a seller might face significant penalties for paying off their mortgage early. By utilizing an addendum, they can transfer the loan to the buyer, bypassing the risk of incurring such penalties.

However, it's essential to note that not all loans are assumable. Some lenders include a due-on-sale clause in their loan contracts, which requires the loan to be paid in full once the property is sold. Therefore, it's necessary to consult with a professional or the relevant lender when considering using a specific addendum.