How Do I Find a Home With an Assumable Mortgage?

Finding an assumable mortgage is like a dual treasure hunt. As a buyer, you will not only be looking for the right home at the right price, but you’ll also be on an expedition to discover if the seller’s loan is assumable.

But if you succeed in your quest, you can sidestep today’s high mortgage interest rates and secure a monthly payment that could be hundreds of dollars less. Because of these golden benefits, assumable loans are in demand. As one New York Times headline proclaimed, “The Hottest Thing in Real Estate Is a Loan From Two Years Ago.”

Along with the obvious advantage of a lower interest rate, an assumed loan can also come with fewer transaction fees and greater speed.

“Assuming an existing mortgage can also save you on closing costs,” says Eric Broesamle, a top Michigan real estate agent who works with nearly 75% more single-family homes than the average agent in his Mount Clemens market. “There are typically fewer fees involved when you do an assumable mortgage rather than a new origination. Plus, the approval process can be faster.”

In this post, we’ll explain how this often elusive financing option can work for you, and share expert tips on how to find an assumable mortgage attached to a home you want to buy.

What is an assumable mortgage?

An assumable mortgage is a unique arrangement where a homebuyer has the opportunity to take over the seller’s existing mortgage. This type of mortgage is increasingly popular among buyers who wish to benefit from lower interest rates.

In the current real estate market, many sellers listing their homes refinanced their mortgages during historically low pandemic-era rates, when rates fell to an all-time low of 2.65% in January 2021.

Taking on an assumable mortgage can be akin to stepping into a financially advantageous position. Instead of securing a new mortgage with higher rates, a buyer can assume the home seller’s existing interest rate, principal balance, repayment period, and other terms of the lending agreement.

“A lot of people right now are concerned about interest rates,” says Broesamle. “This is a great feature for my clients when they’re looking to purchase a new home, and a lot of them don’t know that this is an option.”

It’s important to note, however, that not every mortgage is assumable. Buyers interested in this option must be aware of certain criteria, qualifications, and fees that can come with assuming a mortgage.

What types of mortgage loans are assumable?

Identifying assumable mortgage loans involves examining the type of loan and its specific conditions. Generally, government-backed or insured loans are the most common assumable loans. Here’s a brief overview of assumable mortgage types:

FHA Loans: Federal Housing Administration (FHA) loans are often assumable, subject to lender approval. A qualified buyer must meet standard FHA loan requirements, such as a minimum credit score of 580 and a 3.5% down payment.
VA Loans: Department of Veterans Affairs (VA) loans are usually assumable. According to data from the Government National Mortgage Association (Ginnie Mae), about 90% of all VA homeowners have a mortgage rate below 5% Assumption eligibility includes a minimum 620 credit score and VA approval. Notably, non-veterans can also assume these loans, with the key determinant being creditworthiness. A standard 0.5% VA funding fee is typically applied.
USDA Loans: Assumable under certain conditions, United States Department of Agriculture (USDA) loans typically require lender and USDA approval. The assumption often results in a new interest rate and terms, although exceptions exist, such as in family transfers where the original rate and terms may be retained without the borrower meeting all the eligibility requirements.
Some Adjustable-Rate Mortgages (ARMs): While not widespread, certain ARMs can be assumable. In such cases, the new buyer takes over the existing rate and terms. It’s important to note that assuming an ARM may involve relinquishing the option to convert it into a fixed-rate mortgage, and in cases where a conventional ARM loan has been deferred or modified to help the borrower avoid default, the loan is likely not eligible to be assumed.