Some offers on this page are from advertisers who pay us, which may affect which products we write about, but not our recommendations. See our Advertiser Disclosure .
Buying a home with an affordable mortgage payment at a time of relatively higher interest rates may seem like a difficult or even impossible goal. But what if there were a way to buy a home and keep the seller's existing mortgage with its lower rate and payment? That's exactly what an assumable mortgage helps you do.
Read more: A guide for first-time home buyers
What is an assumable mortgage?
An assumable mortgage is any mortgage that can be transferred from one borrower to another.
Assumable mortgages tend to be attractive when interest rates for new loans are higher than rates were for most earlier loans. Assumptions can also prove useful when a loan is transferred due to a divorce or inheritance.
Conventional mortgages typically aren't assumable, but most government-backed mortgages are. The government-backed category of assumable loans includes:
-
FHA loans , insured by the Federal Housing Administration
-
VA loans , guaranteed by the U.S. Department of Veterans Affairs
-
USDA loans , guaranteed by the U.S. Department of Agriculture
How to find a home with an assumable mortgage
There's no fast and easy way to locate all the homes with assumable mortgages in a particular area, but a few strategies could help you identify these homes one by one.
Search online listings
One strategy is to search for-sale home websites for related keywords, like "assumable" or "assume," or types of assumable mortgages, such as "FHA," "VA," or "USDA." Some for-sale homes are advertised online with offers like: "2.5% Fully Assumable mortgage!" "ASSUMABLE MORTGAGE at 4.625%!!" or simply "ASSUMABLE MORTGAGE."
Ask your Realtor for help
Another strategy is to ask your real estate agent to help you. Your Realtor can search additional listings, research national mortgage data, ask other Realtors about their sellers' mortgages, send letters to homeowners in areas where you want to live, or even knock on doors in those neighborhoods to try to locate current or prospective sellers who may not even know they have an assumable mortgage. Sellers who aren't sure can contact their lender or loan servicer for this information.
Lenders may not be a big help
A strategy that's not likely to work is to ask a loan representative or mortgage broker to find homes with assumable mortgages for you. Loan professionals are compensated for selling new mortgages, not finding old ones to transfer to new borrowers.
How to assume a mortgage
Assuming a seller's mortgage isn't easy, but it could save you thousands of dollars in mortgage interest expense compared with the payment for a new mortgage.
3 steps to assume a mortgage
1. Complete a loan application.To assume an existing mortgage, you'll need to apply and be approved, as you would for any other home loan.
While it is possible to pay someone else's mortgage without the lender's approval, the seller is unlikely to agree to this approach, because without the lender's approval, the seller will remain financially responsible for the mortgage payment, and the lender may demand repayment of the full loan amount.
2. Make a larger cash down paymentor arrange for a second mortgage to finance the difference between the home's sale price and the amount the seller still owes on the assumable mortgage.
FHA, VA, and USDA loans generally allow very small or even 0% down payments , which may make closing the gap with cash or secondary financing easier.
A second mortgage will likely have a higher rate than the assumable mortgage, but the combined payments for both mortgages should still be lower than the payment for a new mortgage for the combined loan amount.
3. Pay any loan fees and closing costs.A home purchase with an assumable mortgage may have lower closing costs than one with a new mortgage; however, the costs typically won't be zeroed out, especially if you need a second loan to finance the full sale price. The seller will also want a release from liability for any future responsibility for repaying the loan.
One more thing to consider: If the assumable mortgage has an escrow (or impound) account for property tax and insurance, those funds will likely remain with the mortgage rather than be refunded to the seller. The buyer and seller will need to negotiate whether either of them will provide the other a credit for all or part of those funds at closing.
Assumable mortgage FAQs
Do you put a down payment on an assumable mortgage?
While every buyer's situation is different, assumable mortgages often require large down payments . When you assume a homeowner's mortgage, your down payment must cover the difference between the home value and the owner's outstanding loan balance. For example, if the sales price is $500,000 and the owner still owes $375,000, you'll need a $125,000 down payment to make up the difference.
What are the downsides of assuming a mortgage?
For one, that large down payment. Assumable mortgages also aren't very common, so finding a loan officer with substantial experience in this area can be difficult.
Do banks still allow assumable mortgages?
Yes, banks and other mortgage lenders allow borrowers to assume a mortgage, though it isn't as common as it once was. But you generally cannot assume a conventional loan — you're limited to government-backed loans.
