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Since 2003, Dan Green has been a leading mortgage lender and respected industry authority. His unwavering commitment to first-time home buyers and home buyer education has established him as a trusted voice among his colleagues, his peers, and the media. Dan founded Homebuyer.com to expand the American Dream of Homeownership to all who want it. .

A Home With An Assumable Mortgage

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What Is an Assumable Mortgage?

An assumable mortgage is a mortgage that lets home buyers take over, or “assume,” the seller’s existing mortgage. Assumable mortgages are advantageous when the loan’s mortgage rate is lower thancurrent mortgage rates.

TABLE OF CONTENTS

Assumable Mortgage: A Longer Definition

What is an Assumable Mortgage?

An assumable mortgage benefits home buyers in a rising interest rate environment.

When a buyer buys a home and assumes the seller’s mortgage, the buyer is assigned the seller’s existing mortgage including its interest rate, loan term, and principal balance. The buyer saves money when the assumable mortgage’s interest rate is below the prevailing market mortgage rate.

Assumable mortgages are most valuable when mortgage rates rise quickly, as in 2022 and 2023.

For example, a homeowner in 2024 could buy a home and get a new mortgage with an interest rate near 7 percent. Or, the same home buyer could buy a home, assume its 2020 mortgage at 2.75 percent, and pay 39% less monthly.

As of April 27, 2024, only FHA, VA, and USDA mortgages are assumable, and home buyers must qualify for the mortgage they wish to assume.

Questions Home Buyers Ask About Assumable Mortgage

What are the benefits of an assumable mortgage for buyers?

When buyers assume an assumable mortgage, they benefit from lower interest rates, reduced closing costs, and faster closing times than starting a new home mortgage.

Can all mortgages be assumed?

No, not all mortgages are assumable. Government-backed loans like FHA and VA loans can be assumed, but conventional loans – loans backed by Fannie Mae and Freddie Mac – are written with a “due-on-sale” clause that prevents loan assumption.

Is it risky to assume a seller’s mortgage?

Assuming a mortgage is generally safe. However, home buyers should ensure a proper title search to uncover unidentified liens and confirm the assumable mortgage terms are more favorable than a new mortgage’s terms would be. First-time buyers may lose access to first-time home buyer programs and cash grants with an assumable mortgage, so check with your lender first.

Do I need a cash down payment when I assume a mortgage?

When a home buyer assumes a seller’s mortgage, the seller can gift some or all of its home’s equity to the buyer, or require the buyer to reimburse them for their home’s equity with cash. The cash payment resembles a down payment, although it’s not a down payment in the strictest definition of the term. The home buyer can also use a second mortgage, such as a Home Equity Line of Credit or a Home Equity Loan, to reimburse the seller.

Do lenders typically require a credit check for an assumable mortgage?

Mortgage lenders must underwrite a home buyer’s mortgage assumption before it can be approved, which requires a credit score check and other home buyer verifications.

Can assumable mortgages be refinanced?

Once a home buyer assumes a mortgage, they can refinance the assumed loan with new terms and conditions, subject to lender approval and prevailing market conditions.

Additional Resources on Assumable Mortgages

Related terms at Homebuyer.com

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       An assumable mortgage is a mortgage that lets home buyers take over, or “assume,” the seller’s existing mortgage. Assumable mortgages are advantageous when the loan’s mortgage rate is lower thancurrent mortgage rates. TABLE OF CONTENTS →  Assumable Mortgage: A Longer Definition →  Questions Home Buyers Ask About Assumable Mortgage →  Additional Resources on Assumable Mortgages Assumable Mortgage: A […]

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