Hi there, thanks for choosing AskaLawyer! I’m Justin, an Expert on AskaLawyer here to help answer your general legal questions. Don’t worry, the law can be complicated, but I’m here to break it down and provide clear, understandable answers. Let me know what’s going on, and I’ll do my best to assist you.

You’re in a unique transaction that combines a formal mortgage assumption with a private side agreement involving additional compensation to the seller.

While the lender’s process will govern the assumption of the mortgage itself (and typically requires you to be qualified and approved to assume the loan), the $5,000 post-closing installment agreement between you and the seller should be carefully documented in a separate, enforceable contract to protect both parties and avoid future disputes.

Because the seller owes more than the property is worth, you’re essentially agreeing to cover the negative equity over time in exchange for taking over their mortgage. To structure this properly, you and the seller should enter into a Promissory Note and possibly a simple Installment Agreement or Side Agreement that outlines the terms: that after the closing date, you will pay them $1,000 per month for five months as additional consideration for the sale, independent of the lender’s mortgage terms.

It should specify due dates, any grace periods, where payments are to be sent, and what happens if either party defaults (for instance, if the seller fails to transfer clear title or you stop making payments).

You’ll also want to ensure the agreement is separate from the assumption paperwork submitted to the lender. Lenders typically do not permit “side payments” as part of the official assumption contract, and disclosing this arrangement in the wrong context could jeopardize the transaction. However, having it in writing between you and the seller privately—preferably with both parties signing in the presence of a notary—gives you a legitimate means of enforcing it later, should there be any disagreements.

It’s also smart to confirm with the lender whether they require the full assumption process to be completed before closing (some do), and whether they restrict certain transfer scenarios. In some cases, the lender must approve the buyer’s creditworthiness and issue formal consent for the assumption to be valid and enforceable.

Yes, it’s a very good idea to formalize the mortgage assumption aspect now—separately from the side agreement—so the core of your deal is secured with the lender’s involvement and consent. Once you receive the assumption packet from the bank, it will likely include forms and requirements related to your creditworthiness, income verification, and possibly a formal approval or underwriting process.

Completing and submitting this promptly is key, because only the lender’s formal approval makes the mortgage assumption binding and enforceable.

In the meantime, while you’re waiting for lender approval, you can absolutely enter into a preliminary Mortgage Assumption Agreement with the seller. This is a private agreement between you and the current homeowner that states your mutual intent to move forward with the transaction via assumption, subject to the lender’s final approval.

It should outline that the buyer (you) agrees to assume the seller’s mortgage as-is, on the terms that currently exist, and that the seller agrees not to sell or encumber the property to anyone else during this process. In other words, it acts as a reservation and commitment while you’re going through the formal lender channels.

This interim agreement doesn’t replace the lender’s paperwork but serves as a binding agreement between you and the seller to proceed with the assumption once permitted. You might also include a clause stating that if the lender denies the assumption for reasons not due to your fault (e.g., due to restrictions on the loan), then both parties can walk away without penalty. But if you’re approved and the seller backs out, you would have the right to enforce the agreement or seek damages.

This kind of document can be brief but should still include key elements like the property address, the loan number (if known), the current balance or monthly payment, the seller’s intent to allow assumption, your intent to assume it, and the understanding that the transaction is contingent upon lender approval. Again, notarizing it adds a layer of seriousness and enforceability.

So yes, go ahead and get that Mortgage Assumption Agreement signed now—it gives you legal footing while the lender’s paperwork is being processed. Then, once you’re approved, you can finalize both the official assumption and the separate side agreement for the $5,000 in installments.

I’m not sure about a template online. I can help draft one for you, however document prep is considered a premium service and requires an additional fee.

Absolutely! You are most welcome.