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 than current mortgage rates.

Assumable Mortgage: A Longer Definition

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 they did in 2022 and 2023.

For example, a homeowner in 2024 could buy a home and get a new mortgage with interest rates averaging 6.25% percent. Or, the same home buyer could buy a home with an existing assumable mortgage at 2.75% from 2020 and assume that mortgage and its payment.

As of November 21, 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—those backed by Fannie Mae and Freddie Mac—are typically 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 the home’s equity to the buyer, or require the buyer to reimburse them for their home’s equity with cash. The cash payment is similar to a down payment, although it’s not technically a down payment. 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 typically 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.