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In a market where interest rates remain higher than many would like, mortgage assumptions can offer a unique win-win scenario for both buyers and sellers. But what exactly is a mortgage assumption? How does it work? And how can you tell if a loan qualifies?
Whether you’re selling your home or buying one, understanding mortgage assumptions can open up opportunities you didn’t even know existed.
What Is a Mortgage Assumption?
A mortgage assumption allows a homebuyer to take over—or “assume”—the seller’s existing mortgage, including its interest rate, remaining loan balance, and repayment terms. This can be incredibly advantageous if the seller’s mortgage has a lower interest rate than current market rates.
For example:
If the seller has a mortgage with a 2.75% fixed rate, and the current rate is 6.75%, assuming that loan could save the buyer hundreds of dollars a month.
Which Loans Are Assumable?
Not all mortgages are assumable. Here’s a quick breakdown:
✅ FHA Loans – Assumable with lender and HUD approval
✅ VA Loans – Assumable, though non-veterans may lose VA eligibility benefits
✅ USDA Loans – Assumable with approval
❌ Conventional Loans – Rarely assumable unless the lender allows it (which is uncommon)
Mortgage Assumption Checklist
Here’s a step-by-step guide if you’re considering assuming or offering an assumable mortgage:
📋 For Buyers:
Verify Loan Type – Confirm the seller has an assumable loan (FHA, VA, or USDA).
Contact the Lender – The loan servicer must approve the assumption.
Qualify Financially – You must meet the lender’s requirements (income, credit, DTI).
Calculate the Equity Difference – You’ll likely need to pay the difference between the home’s sale price and the assumed loan balance in cash or via secondary financing.
Order an Appraisal (optional but recommended) – Ensure you’re paying a fair price.
Hire an Experienced Agent – Not all agents are familiar with this process—make sure yours is.
Close the Assumption – This can take longer than a traditional sale, so patience is key.
📋 For Sellers:
Check Loan Documents – Confirm your loan is assumable and read any restrictions.
Request a Payoff Statement – Know your current balance and remaining term.
Talk to Your Lender – They’ll outline the assumption process.
Disclose the Option – Market your home as having an assumable loan if eligible—it’s a great selling point!
Protect Yourself – Get a release of liability from the lender after the assumption.
Real-Life Scenarios
🏡 Case Study 1: First-Time Buyer Saves Big
Jenna, a first-time buyer in Tacoma, assumed a seller’s FHA loan at 3.1% interest. The original loan balance was $320,000, and the home’s sale price was $370,000. Jenna brought $50,000 cash to cover the difference, saving over $800/month compared to taking a new loan at 6.8%.
“It was like locking in a mortgage from 2021—and it made the home affordable for me again,” she said.
🪖 Case Study 2: VA Loan Transfer to Civilian Buyer
Mark, a veteran, sold his home to a civilian buyer who assumed his VA loan. While the buyer was thrilled to get a 2.9% rate, Mark’s VA entitlement remained tied up in that loan until it’s paid off or refinanced. It was a calculated move he was okay with, but one that all veterans should weigh carefully.
Important Considerations
Timeline: Mortgage assumptions can take longer than a standard loan—30 to 90+ days.
Equity Gap: The buyer needs to cover any difference in value, which can be a hurdle.
Release of Liability: Sellers should confirm they are released from the loan post-assumption.
VA Loan Entitlement: Veterans may lose eligibility unless the buyer is also a veteran and substitutes their own entitlement.
Is a Mortgage Assumption Right for You?
Mortgage assumptions can be a powerful tool in today’s high-rate environment, but they require patience, cash liquidity, and clear communication between all parties. If you’re a seller, it can be a major value add. If you’re a buyer, it could mean thousands saved over the life of your loan.
Let’s Talk Strategy
If you’re wondering whether your loan qualifies for assumption—or you’re a buyer looking for assumable homes—reach out! I’m happy to guide you through the details and help you decide if this is the right move for your real estate goals.
