Question:

When is a due-on-sale clause inserted?

Answer:

A due-on-sale clause is added by lenders to a mortgage agreement to prevent house sale and mortgage assumption to a buyer who may become a delinquent borrower. The due-on-sale clause demands that the loan becomes due in full if the property is sold to unapproved purchaser without expressed consent of the lender.

Many times a buyer would like to purchase a house with the existing mortgage (that is, assume the mortgage) to preserve the low interest. If rates are high, assuming a mortgage may be the best way to become a homeowner.

The only mortgages that never had a due-on-sale clause and were always assumable are the FHA and VA insured loans. Nowadays, FHA and VA mortgages can be all assumed by approved borrowers.

Even if trying to sell the house without the lender knowing can be risky, it is not illegal. If you want to transfer your mortgage to someone else, the lender may decide to call the loan according to the due-on-sale clause. However, not all lenders will do that. Also, you could try to negotiate the mortgage assumption with the lender for a fee.

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