Assumable Mortgage: What It Is and How It Works

To buy a house, you need to take out a mortgage. It is the easiest option to buy the home of your dreams. But what to do when the property is already under mortgage? In this case, you can take loan assumptions. That is, you will have to pay the balance of funds from the former owner. Let's figure out what is loan assumption and whether it's worth getting in touch with it.

Explanation of what is an assumable mortgage

An assumable mortgage allows you to purchase a home without taking out a new real estate loan. You liked the house, but the owner has not settled with the creditor yet. In the case of a purchase, the balance of the debt, interest, and all payments go to you. At the same time, you do not issue a new mortgage.

Assumption of mortgage makes it possible to purchase housing on more favorable terms. You will have to pay low interest even when real estate prices rise.

Assumable mortgage: how it works

Assuming a mortgage allows you to get the initial balance of the home loan on the original terms. But remember that the loan does not take into account the initial capital. If the property has increased in value since the mortgage was taken out, you will have to pay the difference in weight.

For example, the mortgage balance is $200,000. The original cost was $300,000. You will have to pay the seller the $100,000 difference in cash or another type of credit.

More often than not, buyers take out a credit to assume a loan. In this case, be prepared for high-interest rates. But it is still more profitable than taking out a new mortgage. There are two options for making an assumption:

Simple assumption. In this case, the transfer of mortgage rights is private; the creditor does not participate. If the buyer stops making payments, the seller will also be liable.

Novation. With such an assumption, the creditor must agree to the mortgage transfer. In this case, the real estate seller is not responsible for the further actions of the buyer.

Types of loans that can be issued

You can easily apply fha assumable loan fha, a loan from the Department of Veterans Affairs, or take out funds from the Department of Agriculture. It will be more difficult to issue a regular loan. Let's consider all these options.

A regular loan

People who buy housing are interested in the question: are conventional loans assumable? It isn't easy to give an unequivocal answer. There is a clause in the mortgage agreement that makes this unlikely. It allows the creditor to demand full payment if the property is sold.

On the other hand, you may have an adjustable-rate mortgage, a stable income, and an excellent credit rating. In this case, the creditor can approve the loan.

FHA loan

The fha loan assumability increase if the lender approves the agreement for the sale of the property. The buyer must confirm the ability to make regular payments. But there are certain situations in which the creditor should not agree to the agreement (for example, death or inheritance).

VA loans

The Department approves VA lending of Veterans Affairs. You must be in the military and meet the requirements. When making an assumption, the buyer who assumes debt obligations does not necessarily have to be a military man.

USDA Loans

There are two options for obtaining a loan from the Ministry of Agriculture:

  • new conditions and tariffs;

  • the same conditions and tariffs.

The lender can revise the financing terms when issuing a mortgage with an assumption. He has the right to set new tariffs and rates.

A mortgage under the same conditions is available for family members who exchange property ownership. In this case, the level of income and credit history is not checked. The mortgage payment terms remain the same.

Assumable mortgage: advantages and disadvantages

People very rarely pay attention to assumed loan. And for a good reason. It is a great option to buy property. But considering all the advantages and disadvantages of such a decision is worth considering.


Low-interest rate. Even if the interest on the mortgage has increased, you can buy a house with a mortgage under the old terms. For sellers, this is a great option to attract the attention of interested buyers and quickly sell real estate.

A smaller amount of debt. You will need less money to buy a house that is in a mortgage. Accordingly, the amount of future debt is reduced.

Lack of assessment. An expert assessment is not required to conclude such an agreement, which allows you to save on the services of a specialist.

Low closing costs. Certain mortgage closing costs are limited. It makes an eligible mortgage quite a profitable option.


High initial fees. If the seller has a high level of equity, your down payment should be higher.

Strict requirements of creditors. The seller will not agree to sell the property if you do not meet the lenders' needs and have a low-income level.

Availability of potential commissions. You may have to pay specific fees when applying for an eligible mortgage, leading to unexpected expenses.