Is an Assumable Mortgage the Right Financial Move for You?

These increasingly popular mortgages could save you big bucks.

Vitalii Vodolazskyi/Shutterstock

If you’re in the market for a house, you may feel helpless in the face of steep housing prices and high interest rates. There’s one trick, however, that could save you potentially hundreds of thousands of dollars over the life of a home loan.

That trick is an assumable mortgage.

With an assumable mortgage, a buyer takes over the existing seller’s mortgage instead of securing a new one. Notably, an assumed mortgage usually includes perks such as the seller’s interest rate and repayment schedule. And in today’s housing market, that can mean significant cost savings for home buyers.

With current interest rates for a 30-year loan nearing 7 percent, if you can assume a mortgage from a seller with a 30-year loan at a 2.9 percent interest rate, you could save thousands of dollars on interest.

Not all mortgages can be assumed, and they can come with a high down payment, so you'll want to do your homework. Nonetheless, whether you’re selling or buying, an assumable mortgage could be the right financial move.

Why Look at Assumable Mortgages

Interest rates remained low between 2012 and 2021. In 2021, the interest rate on a 30-year fixed-rate mortgage bottomed out at 2.96 percent.

Rates took an upward trajectory in 2022, and currently, according to Freddie Mac, the 30-year primary mortgage rate is sitting at 6.81 percent.

By entering into an assumable mortgage that was obtained at a time when rates were lower, you'll also take over that low interest rate. So instead of that 6.81 percent, you could be paying 2.96 percent if the seller had financed in 2021. That’s a big savings.

You’ll also have the same term. For example, if it’s a 30-year loan and the seller is 15 years into it, you’ll only need to pay the remaining 15 years. At that point, the house will be yours.

In addition, the seller may be able to sell the home at a higher price, because he or she is allowing the buyer to lock into a lower rate.

How Assumable Mortgages Work

There are two ways to assume a mortgage. The first way is “novation.” This is when a lender agrees to let a buyer take over an existing mortgage.

The lender will put the buyer through the underwriting process. Once the buyer is approved, the lender will release the seller from the responsibility of making future mortgage payments.

Another, less common option to taking over a mortgage is “simple assumption.” Simple assumption is a private transfer of responsibility for the mortgage from the seller to the buyer. It is done without the mortgage lender’s approval.

In this case, the buyer doesn’t have to undergo the underwriting process. This is risky, however, because if the buyer fails to make payments or otherwise breaches the mortgage contract with the lender, the buyer and seller are liable.

Simple assumption mortgages are typically used when there is a family or other existing relationship between buyers and sellers.

Buyers who want to assume a mortgage must meet specific requirements and receive approval from the agency sponsoring the mortgage.

Types of Loans That Are Assumable

FHA and Assumable Loans

The Federal Housing Administration (FHA) is one of those loan sponsors. The FHA allows assumable loans when both parties meet specific requirements.

A prospective buyer must verify that the FHA loan is assumable and must apply to the FHA lender as he or she would for a standard loan. The buyer must meet underwriting qualification, including creditworthiness.

The property must be used as a primary residence. And until the seller is released from the loan, he or she is still responsible for it.

USDA Assumed Loans for Rural Properties

When assuming a United States Department of Agriculture (USDA) loan, you must meet the standard qualification. This includes credit and income requirements. However, most USDA loan assumptions involve new rates and terms, although transfers of USDA loans between family members may involve the same rate and terms.

Even if the seller meets all the requirements and receives approval, the mortgage can’t be assumed if the seller is delinquent on payments.

VA Loans for Military Members

Although you must be a member of the military to qualify for a Veterans Administration (VA) loan, you don’t need to be a member of the military to assume a VA loan.

You’ll still need loan approval for assumption by the regional VA loan office, however.

But if a seller lets a non-military buyer assume their loan, the seller will lose their VA loan entitlement for another home purchase. The entitlement stays with the property until the loan is repaid.

When Loans Are Not Assumable

According to the Census Bureau, in 2023, 73 percent of new single-family houses sold had conventional mortgages. And unfortunately, they aren’t usually assumable.

That’s because most mortgages contain a due-on-sale or due-on-transfer clause. This clause mandates that the mortgage be paid in full whenever the original borrower sells the property. That usually means that the buyer takes out a new mortgage to pay off the old loan, rather than assuming the old loan.

However, a conventional mortgage may be assumable in specific circumstances like inheritance, divorce or transfers to a spouse or children.

Assumable Mortgages and the Seller’s Home Equity

With an assumable loan, you have the opportunity to lock in a low interest rate. But, there is a downside. If the seller has a lot of equity in their home, you’ll need to make up the difference when you buy it.

For example, if the seller’s house is appraised at $435,000 and the loan balance is $300,000, the equity will be $135,000. You'll need to come up with that equity figure to purchase the house.

An option to this scenario, if you don’t have the $135,000, is to take out a home equity loan as a second mortgage to make up the difference.

Although the second loan may have a higher interest rate than the assumed loan, it may still save you in the long run.

Where to Shop

Because assumable mortgages have become popular, websites catering to interested buyers have appeared. Realtor.com now tags its listings with assumable mortgages. Other popular sites include Assumable.io, AssumeList.com, and WithRoam.com

Another way to find sellers open to assumable loans is to examine multiple listing service (MLS) listings. A real estate broker will often note in the listing that an assumable mortgage is available.

Another possibility is that a homeowner in default may be willing to let you assume his mortgage to avoid foreclosure. However, in this scenario, you will be required to bring the loan current or enter into a repayment plan.

The Bottom Line

With an assumable mortgage, a buyer takes over the seller’s existing mortgage instead of securing a new one. Because assumed mortgages usually include advantages such as assuming the seller’s interest rate and repayment schedule, you could save tens or potentially hundreds of thousands of dollars with one of these increasingly popular mortgages.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.