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What to Know About Assumable Mortgages

Homebuyers looking for a 3% or 4% mortgage rate may want to consider an assumable mortgage.

Assumable mortgages are just like they sound. They allow buyers to assume the seller’s existing mortgage—and their mortgage rate. The rates may be lower than today’s available rates.

However, assumable mortgages may not save buyers as much as they think—if they can even find one.

Less than a quarter of all mortgages can be assumed. Only Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and U.S. Department of Veterans Affairs (VA) loans are eligible.

Even sellers who are eligible may be reluctant to allow a buyer to assume their loan.

If the buyer fails to pay the mortgage once they take it over, the seller could still be held responsible. It may not matter that they no longer own the property.

Buyers without deep cash reserves may not be able to afford an assumable mortgage. They must typically buy out the seller’s equity to assume the mortgage.

This includes the seller’s original down payment, what the sellers paid off on their mortgage loan, and any appreciation the home has experienced since the seller purchased it.

This may be tens of thousands, or even hundreds of thousands, of dollars that the buyers need to bring to the closing table.

An assumable mortgage may help buyers snag a lower mortgage rate, but it might not be the right fit for every buyer.