Assumable Mortgage: How to Take Over Someone's Low Rate Loan

An assumable mortgage lets a buyer take over the seller’s existing loan, including the interest rate and remaining term. FHA, VA and USDA loans are typically assumable, while most conventional loans are not. If a seller has a 3.5% rate from 2021 and current rates are 7%, assuming their loan could save the buyer hundreds of dollars monthly and hundreds of thousands over the loan’s life.

What Is an Assumable Mortgage?

The Basic Concept

With assumption:

• Buyer takes over seller’s existing mortgage
• Same loan balance, rate and remaining term
• Seller is released from liability (with lender approval)
• Buyer pays seller for their equity separately

Why It Matters Now

Millions of homeowners locked in rates between 2.5-4% in 2020-2021. With current rates at 6-7%+, these low-rate loans are extremely valuable.

Example savings:

• Seller’s loan: $350,000 at 3.5% = $1,572/month
• New loan at 7%: $2,329/month
• Monthly savings: $757
• Lifetime savings: $200,000+

Which Loans Are Assumable?

Assumable Loan Types

Loan Type	Assumable?	Notes
FHA	Yes	Lender approval required
VA	Yes	Special rules apply
USDA	Yes	Lender approval required
Conventional	Usually No	Due-on-sale clause
Jumbo	Usually No	Depends on terms

Why Conventional Loans Aren’t Assumable

Most conventional loans have a “due-on-sale clause” requiring full payoff when the property is sold. This prevents assumption.

Exceptions exist: Some older loans or specific programs may be assumable. Check your loan documents.

How Loan Assumption Works

The Process

Step 1: Determine assumability

• Confirm loan type (FHA, VA, USDA)
• Review loan documents
• Contact servicer to verify

Step 2: Buyer applies to assume

• Submit assumption application to servicer
• Provide financial documentation
• Pay application fee

Step 3: Lender reviews buyer

• Credit check
• Income verification
• DTI calculation
• Standard underwriting

Step 4: Negotiate equity payment

• Buyer pays seller for their equity
• Can use cash, second mortgage or combination
• This is separate from assumption

Step 5: Complete assumption

• Sign assumption documents
• Pay assumption fees
• Seller is released from liability
• Buyer takes over loan

Timeline

Assumptions take 45-90 days typically—longer than standard purchases due to servicer processing.

Paying for the Seller’s Equity

The Equity Gap

The assumed loan doesn’t cover the full purchase price.

Example:

• Home value: $450,000
• Assumable loan balance: $320,000
• Seller’s equity: $130,000

The buyer must pay the seller $130,000 for their equity.

How to Cover the Equity

Cash:

• Pay equity in cash
• Simplest approach
• Requires significant savings

Second mortgage:

• Get a home equity loan or HELOC
• Covers the equity gap
• Results in two payments

Combination:

• Some cash down
• Smaller second mortgage
• Balance affordability and cash needs

Equity Gap Example

Scenario	Assumed Loan	Equity (Cash/Loan)	Total
A	$320,000 at 3.5%	$130,000 cash	$450,000
B	$320,000 at 3.5%	$130,000 second at 9%	$450,000
C	$320,000 at 3.5%	$50K cash + $80K second	$450,000

Even with a second mortgage at higher rates, the blended rate is often better than a single new loan at current rates.

FHA Loan Assumptions

Requirements

Buyer must:

• Meet FHA credit requirements (580+ for 3.5% down equivalent)
• Meet DTI requirements (43-50%)
• Occupy as primary residence
• Pay assumption fee (typically $500-$1,000)

The loan:

• Must be current (not in default)
• Servicer must approve
• MIP continues as originally structured

FHA Assumption Process

1. Buyer submits application to servicer
2. Servicer underwrites buyer
3. If approved, documents are prepared
4. Closing occurs with assumption
5. Seller is released from liability

FHA-Specific Considerations

• MIP structure continues (may be lifetime MIP)
• Remaining loan term doesn’t reset
• Property must still meet FHA standards

VA Loan Assumptions

Who Can Assume VA Loans

Anyone can assume a VA loan:

• Veterans
• Non-veterans
• No military service required

Entitlement Considerations

If a veteran assumes:

• May use their own entitlement
• Seller’s entitlement may be restored

If a non-veteran assumes:

• Seller’s VA entitlement remains tied up
• Seller can’t use entitlement for new VA loan
• Until assumed loan is paid off

VA Funding Fee

The assuming buyer may owe a funding fee:

• 0.5% of the loan balance
• Some exemptions apply
• Lower than new loan funding fee

VA Assumption Process

1. Obtain Certificate of Eligibility (if veteran assuming)
2. Apply through servicer
3. VA reviews and approves
4. Complete assumption
5. Entitlement adjusted accordingly

VA-Specific Considerations

For sellers:

• If non-veteran assumes, your entitlement is stuck
• Consider requiring veteran buyer
• Or accept entitlement limitation

For buyers:

• Great opportunity regardless of veteran status
• Verify seller understands entitlement impact

USDA Loan Assumptions

Requirements

• Buyer must meet USDA income limits
• Property must be in eligible area
• Standard credit and DTI requirements
• Must be primary residence

USDA Assumption Process

Similar to FHA:

1. Apply through servicer
2. Servicer reviews qualification
3. USDA approves
4. Complete assumption

Finding Assumable Mortgages

How to Identify Them

Ask the listing agent: “Is this an FHA, VA or USDA loan that might be assumable?”

Check public records:

• Deed of trust may show loan type
• FHA/VA loans are often identifiable

Look for listings mentioning:

• “Assumable mortgage”
• “VA assumable”
• “FHA loan”

Search Strategies

MLS search: Some MLS systems allow filtering for assumable loans.

Expired domain strategy: Target homes purchased 2020-2021 when rates were lowest.

VA-focused marketing: Sellers with VA loans may not realize the value—educate them.

Emerging Marketplaces

New platforms are emerging to match assumable loan sellers with buyers. Search for “assumable mortgage marketplace.”

Assumption Costs

Typical Fees

Fee	Typical Amount
Assumption application	$500-$1,000
Processing fee	$300-$800
Credit report	$50
Title insurance	$500-$1,500
Recording	$50-$250
Attorney (some states)	$500-$1,000

Total: $2,000-$5,000 (much less than new loan closing costs)

Comparison to New Loan

Cost Type	Assumption	New Loan
Total fees	$2,000-$5,000	$8,000-$15,000
Interest rate	Seller’s rate	Current market
Monthly payment	Lower	Higher

Risks and Challenges

For Buyers

Equity gap financing:

• May need second mortgage at high rate
• Large cash requirement
• Complicates transaction

Property condition:

• Still need inspection
• May have deferred maintenance
• Appraisal still matters

Servicer delays:

• Assumption processing is slow
• 45-90 days typical
• Seller must wait

For Sellers

Liability risk (if not properly released):

• Ensure lender releases you
• Get documentation
• Don’t assume verbal promises

Entitlement issues (VA):

• May not be able to use VA again
• Until loan is paid off
• Consider impact carefully

Limited buyer pool:

• Not everyone understands assumptions
• May take longer to find buyer
• Need buyer with equity gap solution

For Both

Fewer lenders understand it:

• Process confusion
• Longer timelines
• Need patient parties

Assumption vs New Loan Decision

When Assumption Wins

• Rate difference is 2%+ lower
• Buyer can cover equity gap
• Buyer qualifies for assumption
• Time allows for longer process

When New Loan Wins

• Small rate difference
• Large equity gap
• Buyer needs specific loan terms
• Quick closing required

Break-Even Calculation

Calculate how long to recoup assumption complexity:

Monthly savings: $500 Extra hassle cost (estimated): $5,000 Break-even: 10 months

If staying longer than break-even, assumption wins.

Future of Assumable Mortgages

Growing Interest

With millions of low-rate mortgages outstanding, assumptions are becoming more common and understood.

Industry Adaptation

• More servicers developing assumption processes
• New platforms connecting buyers and sellers
• Real estate agents learning the process
• Attorneys specializing in assumptions

What to Watch

• Policy changes affecting assumability
• New products bridging equity gaps
• Technology simplifying the process

Frequently Asked Questions

Can I assume any mortgage?

No. Only FHA, VA and USDA loans are typically assumable. Most conventional loans have due-on-sale clauses preventing assumption.

Do I need to be a veteran to assume a VA loan?

No. Anyone can assume a VA loan with lender approval. However, the seller’s VA entitlement remains tied up until the loan is paid off.

How do I pay the seller for their equity?

You can pay cash, get a second mortgage or use a combination. The equity payment is separate from the assumed loan.

Does the seller’s rate transfer to me?

Yes. You assume the exact loan terms, including the interest rate, remaining balance and remaining term.

How long does assumption take?

Typically 45-90 days—longer than traditional purchases. Servicer processing is often the bottleneck.

Will I need to qualify for the assumption?

Yes. The lender underwrites you just like a new loan—checking credit, income and DTI. You must meet the loan program’s requirements.

What happens to the seller after assumption?

With proper lender approval, the seller is released from liability. They no longer owe the debt. Get this release in writing.