how to get an assumable mortgage

Assumable Mortgages Explained: How to get an Assumable Mortgage

While purchasing a new house, we mostly take out a new mortgage, but at the same time, we look for the best possible rates we can secure. As interest rates are high, it can take a lot of work for a buyer to secure a brand-new mortgage at a reasonable rate in such an environment. So, is there any way to get a loan at lower rates? Here, assumable mortgages are important to benefit both buyer and seller. We are going to cover how you can mow the most benefits of an assumable loan and how you can get an assumable mortgage.

Key Highlights 

  1. An assumable mortgage is an original loan held by a homeowner who transfers the loan to a buyer with approval from a lender when he sells.

  2. The seller with the assumable mortgage sells interest loans and other terms to the buyer.

  3. An assumable mortgage can bring numerous benefits to the buyers as they can get comparatively low-interest rates.

  4. While going for an assumable mortgage, the buyer must still qualify by providing personal financial information and undergoing a credit check.

What does it mean if a mortgage is assumable? 

When you purchase a new home, despite financing for a new loan, you buy a seller's loan instead. An assumable mortgage is a kind of mortgage that is transferred from the current owner of the property to the buyer, and the terms are similar to the original terms. Here, the buyer eliminates the need to raise funds for his new house and assumes the seller's mortgage.
If we explain an assumable mortgage, many home buyers take mortgages from lending institutions like banks, credit unions, etc., to finalise their home purchase. Here, the buyer and lending institution enter into an agreement where the buyer has to repay the loan with interest.  However, if the original owner decides to sell his house before paying off the loan, he can transfer the existing mortgage to a new buyer. Here, the original mortgage is now known as an assumable mortgage. 
While transferring the assumable mortgage, the seller also transfers the current amount, repayment period, interest rate, and other contractual terms to the home buyer. This benefits the seller, and the buyer does not have to enter the prolonged process of securing a new mortgage.

Types of Loans that Are Assumable 

Three types of popular types of mortgages are assumable

  • Federal House Authority FHA
  • Veterans Affairs VA
  • US department of agriculture USDA

A buyer who wants to assume a mortgage from a seller must meet the specific requirements and receive approval from the specific agency sponsoring the mortgage.

1. FHA loans

Most government-backed loans, like FHA loans, are assumable. However, the lender must approve the sale and fit an additional requirement, such as the loan must have originated on or after December 15, 1989. Here, the buyer must be creditworthy, and the lender must approve the sale by assumption and transfer the responsibility to the buyer.

2. VA loans

All VA loans are assumable and originated before 1 March 1988, and they don't need to be approved by anyone. Loans that originated after 1 March 1988 are assumable. Still, the lender must approve them, and the buyer must be creditworthy and pay a processing fee.

3. USDA loans

  • Most USDA loans are assumable. However, they have two major subsets- changing interest rates and costs where the responsibility of the mortgage is transferred to the buyer at the same time it adjusts the term of the loan. It is called re-amortizing the debt with new rates and terms where the monthly payment and interest cost can change.
  • USDA loans are assumable loans with the same rates and terms only in special circumstances. This assumption is only reserved for family members exchanging ownership of a property. Here, the original mortgage rates and terms are secured, and there is no need to review the buyer's creditworthinessbuyer's creditworthiness or appraisal of the property.

How to Get an Assumable Mortgage?

To get an assumable mortgage, you need to follow the following steps

  1. Confirm that the loan is assumable: Before going for a new loan, if you are thinking of opting for an assumable mortgage, you need to speak with your current mortgageholder lender and confirm that they will allow the assumption and that the borrower has been consistent and timely with their payments.

  2. Prepare for the cost: Despite assuming a mortgage, you still need to make a down payment. However, the amount depends on the seller's equity. If your assumption is approved, you need to pay the closing cost, which is generally lower in an assumable mortgage than a new loan.

  3. Submit your application: The process of assuming a mortgage can be different and vary from lender to lender, but still, you need to fill out an application form, provide proof of income and assets, and submit a credit check.

  4. Close & liability release: If you get approved for an assumable mortgage, you must complete the paperwork similar to what you would have done for any other type of loan. This might include a release of liability confirming that the seller is no longer responsible for the mortgage.

Advantages and Disadvantages of an assumable mortgage 

Advantages of an assumable mortgage

1. You get a lower mortgage rate:

Most buyers prefer assumable mortgages because they offer lower interest rates when compared to available rates. If a buyer gets a mortgage loan originated or refinance in times of historical lows of around 3%, it can help him save a big amount on paying interest rates. If you compare the mortgage rates in 2023, they were around 6.5% to 7%; therefore, getting an assumable mortgage at 3% would have made buyers save a lot on interest.

2. Limitations on closing cost:

In assumable mortgages, lenders don't require a home appraisal, which saves time and money at closing. If the assumable loan is a type of government-backed mortgage, the closing cost has some limitations. For example, in VA loans, lenders can't charge more than 1% of the loan amount for origination fees.

3. Sellers can attract more buyers:

If the existing mortgage has a lower interest rate than interest rates in the current market, the seller benefits from attracting more buyers. He can set himself apart from other sellers by offering the benefits of an assumable mortgage.

Disadvantages of an assumable mortgage

1. The assumption gap:

The remaining loan amount on an assumable mortgage might not cover the agreed-upon purchase price, and the buyer is responsible for paying the difference. The buyer might take out a second mortgage or make a significant upfront contribution to cover the gap. If the buyer takes out secondary financing, he has to go through the entire application and underwriting process, which offsets the key benefit of an assumable mortgage.

2. Increased risk for the seller

In an assumable mortgage, buyers must meet the lender's credit and income requirements; this could delay the closing if the lender denies the buyer's application. Also, to eliminate the risk for the seller, he needs to ensure that his name is fully removed from the mortgage during the transfer because if the buyer fails to make the payment, he is responsible for further payments.

3. No more options available

Suppose the buyer agrees to an assumable mortgage. In that case, he cannot shop around and choose a lender that might have offered him better options.

What credit score do you need to assume a mortgage? 

  1. If you are going for FHA loans, you need a minimum credit score requirement of 580; however, some lenders may also require higher credit. 
  2. The minimum credit requirement for USDA loans is 580 to 620, and it also depends on individual lenders. Your debt ratio should not exceed 29% of your housing expenses and 41% of your monthly expenses.
  3. As VA loans serve a specific purpose for current and former military members, there are no credit requirements. The veteran administration backs their loans with the guarantee known as entitlement, and each serviceman has a basic entitlement of $36,000.

How long does it take to assume a mortgage? 

There might come a situation when you want an assumable mortgage as you get the same interest rate the original owner has on his loan. If the interest rate increases in the current situation, it can bring you various benefits. The biggest benefit of assuming the mortgage is saving time, as it typically takes 30 days to approve a mortgage assumption. Therefore, it makes sense in a few situations to get an assumable mortgage rather than opting for a new loan.

What is the difference between an assumable mortgage and a subject-to-mortgage? 

  1. A slight difference exists between assuming a mortgage and being subject to it. In an assumable mortgage, the buyer takes on the responsibility, and the seller is no longer liable for the loan. In a subject mortgage, the seller is not released from the responsibility. If the buyer defaults, the seller has to pay the loan. 
  2. If the assumption is used for a mortgage when a buyer assumes the personal liability of an existing house subject to a mortgage, the buyer has no liability to repay the loan. This means the loan stays in the seller's name, but the buyer still gets the deed and control of the property.


An assumable mortgage means taking over the seller's loan instead of a new one. In an assumable mortgage, the buyer takes over the responsibility and liability the seller has on the loan. While assuming the mortgage, you can secure a reasonable loan. However, assumable mortgages cannot always bring benefits to the buyer. If you find your lender is making it difficult to assume a mortgage, it might be in your best interest; therefore, sometimes it is good to get a brand new mortgage instead of an assumable one.


What does assumable mean?

Assumable means when one party takes over the obligation of another. For example, the buyer takes responsibility for the seller's existing loan while purchasing a new home. In such a scenario, the seller is no longer responsible for paying off the debts.

Is an assumable mortgage good?

If the current interest rates are higher than existing rates in the mortgage, in such cases, assuming a loan can be a good option. Also, there is no need to pay the closing costs in assumable loans. On the other hand, if the seller has substantial equity in the home, the buyer has to pay a large down payment or secure a second mortgage to cover the balance.

What does not assumable mean?

If the buyer cannot assume the existing mortgage from the seller, it means they are not assumable. For example, conventional loans are not assumable. Also, some mortgages have non-assumable clauses where the buyer cannot assume the loan from the seller.

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24 Oct, 2023


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