What is a Due-on-Sale Clause

Before you sign those mortgage papers, you may want to check to see if there is a due-on-sale clause. This is a very important clause to be aware of because it makes the balance of the mortgage due immediately, should the mortgage holder decide to sell the home. This makes it difficult to sell the home and move unless the homeowner has a significant source of funds available or has a new buyer lined up immediately. Typically, the buyer needs to have financing and everything secured before the seller with a due-on-sale clause can make a move, or that seller will be unable to pay off the balance on the mortgage before moving into a new home. With a due-on-sale clause, this means the majority of mortgage loans are no longer assumable. Assumable loans are a good thing for the market because they help people get out of pinches, and they help people who want to save money on credit checks and other closing costs get into a home more cheaply. There are still some FHA and VA loan programs that do not have a due-on-sale clause. If the lender decides to sell the loan to another lender, this clause is rarely activated.