In what type of financing arrangement does the buyer of a property take over payments on the seller's mortgage?

The type of financing arrangement where the buyer takes over payments on the seller's existing mortgage is known as an assumable mortgage. This involves the buyer entering into a contractual agreement that allows them to assume responsibility for the remaining balance of the seller’s mortgage. When a mortgage is assumable, it means the lender permits the buyer to step into the seller’s shoes, maintaining the same loan terms, interest rate, and payment amounts.

Assumable mortgages can be advantageous, particularly if the current interest rates are higher than the rate on the existing mortgage. By assuming the seller’s mortgage, the buyer may secure better financing terms, which can help make the property more affordable. Additionally, this type of arrangement can expedite the closing process as it typically requires less formal underwriting.

In contrast, other options such as a purchase money mortgage involve a new loan taken out by the buyer specifically to purchase the property, while traditional mortgage financing refers to conventional loans that don’t necessarily allow assumption. VA and FHA financing is related to specific government-backed loan types, and these may or may not be assumable depending on the terms. However, the defining feature of an assumable mortgage is that it explicitly allows the buyer to take over the seller’s existing mortgage payments.