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An assumable mortgage allows homebuyers to take over a seller’s existing home loan – including the original interest rate. In today’s higher-rate environment, this can mean big savings for buyers and an added selling point for homeowners. But while assumable mortgages have clear advantages, they also come with limitations that make them relatively rare.
How Does an Assumable Mortgage Work?
When a buyer assumes a mortgage, the seller transfers their existing loan to the buyer. The loan terms – such as the interest rate, loan balance, and monthly payments – remain unchanged.
The process looks similar to a standard home purchase. The buyer and seller enter into a purchase agreement, but instead of traditional financing, the contract includes a mortgage assumption clause. The buyer must also cover the difference between the outstanding loan balance and the agreed-upon purchase price, known as the assumption gap.
Example: If a seller owes $325,000 on their mortgage and lists their home for $430,000, the buyer would need to make up the $105,000 difference – either in cash or with a second loan.
Buyers must still meet the lender’s requirements. “Even if a seller offers an assumable mortgage, the buyer has to qualify with the lender just like they would for a new loan,” explains Sandy Jamison of The Jamison Team in San Jose. “That means your credit score, income, and debt-to-income ratio all come into play.”
If approved, the lender officially transfers the loan to the buyer, and the sale closes. If not, the deal may fall through, requiring the seller to re-list the property.
Which Mortgages Are Assumable?
Most conventional mortgages, including conforming and jumbo loans, don’t allow assumption. Only government-backed loans typically do:
- FHA loans
- VA loans
- USDA loans
According to industry data, assumable government-backed loans represent about 23% of the market. That means nearly 12 million homeowners could offer this option – but many sellers won’t, since it can complicate the sale.
“Unless a seller is struggling to attract offers, they often don’t use an assumable mortgage as leverage,” says Jamison. “In a strong market, demand is usually high enough without it.”
Finding these opportunities can be difficult. Buyers should work with a real estate agent who knows how to search listings for terms like “assumable mortgage,” “FHA,” or “VA loan.”
Pros of Assumable Mortgages
- Lower rates: Buyers may inherit a loan from years past when interest rates were in the 3% range, compared to today’s 6.5%–7%.
- Lower closing costs: Some government loans cap lender fees, and appraisals are often not required.
- Stronger selling point: Sellers can stand out in a competitive market by offering buyers a chance to secure a lower rate.
- VA flexibility: A VA loan can be assumed by non-military buyers, broadening its appeal.
Cons of Assumable Mortgages
- Large assumption gap: Buyers may need significant cash to cover the difference between the loan balance and the sale price. “Some buyers can use a second mortgage, but that usually comes with higher costs and more paperwork,” notes Jamison.
- Closing delays: Assumptions can take 60–90 days, compared to 30–45 days for a standard loan.
- Seller risk: If the lender doesn’t fully release the seller from liability, they could still be responsible if the buyer defaults.
- Limited lender choice: Buyers must work with the seller’s lender instead of shopping around.
- VA entitlement loss: Sellers who transfer their VA loan to a civilian lose their entitlement until that mortgage is fully paid off.
Is an Assumable Mortgage Right for You?
If you find one, an assumable mortgage can be a great way to lock in a lower rate – provided you have the funds to cover the gap. But Jamison cautions buyers not to focus too much on the loan itself:
“An assumable mortgage can save you money, but at the end of the day, it’s about the house,” says Jamison. “Make sure the property fits your long-term needs first. The loan should be the bonus, not the priority.”