Is My Mortgage Assumable? A Guide for Home Sellers

In today’s real estate market, with high mortgage interest rates and hesitant buyers, you might be pondering, “Is my mortgage assumable?” as a strategy to accelerate your home sale. Or, you might want to allow a family member to assume your mortgage so they can inherit a financial advantage through your low-interest-rate home loan.

If you’re a homeowner gearing up to sell, the concept of an assumable mortgage could be a golden ticket in accelerating these and other objectives. But what exactly does it entail?

In this guide, we’ll explore if your mortgage qualifies, the potential benefits and drawbacks for sellers, the process involved, and how it affects your financial responsibilities. Read on to unlock the possibilities that assumable mortgages could hold for your home sale.

What is an assumable mortgage?

An assumable mortgage is a type of home loan transaction that allows a new buyer to take over the seller’s existing mortgage. Instead of securing a new mortgage, the buyer takes over where the seller left off, literally “assuming” the remaining principal balance, repayment period, and other terms.

The current housing market has created a wave of buyers shopping for homes with assumable mortgages. Their goal is to take advantage of historic low interest rates many homeowners secured when they refinanced during the pandemic years.

Why would I let a buyer assume my loan?

An assumable mortgage might be your key to a smoother home sale or even a unique way to pass on a financial advantage to a family member, like a son or daughter.

In a market where interest rates are high, your assumable mortgage could be a highly attractive feature. It’s not just about selling your home faster; it can also be a way to give a family member a head start in homeownership, benefiting from the lower interest rate you secured.

Remember, though, not all mortgages qualify for this, and certain criteria must be met. This option can create a win-win situation, easing your selling process or keeping the home “in the family” under favorable financial conditions.

Is my mortgage assumable?

Determining if your mortgage is assumable hinges on the type of home loan you have. Different mortgage types have distinct rules regarding assumption. Here’s a breakdown of major mortgage loan types to help you understand where your loan stands:

FHA loans

FHA loans, backed by the Federal Housing Administration, are typically assumable. If you have an FHA loan, a buyer can assume it, subject to approval by the lender. They must meet credit and income qualifications, but this can be a smooth path for transferring your loan.

VA loans

VA loans, designed for military service members and veterans, are also assumable. However, the process involves approval from the VA or the lender. It’s important to note that if a non-military buyer assumes your VA loan, it might not free up your VA loan entitlement for future use. (We’ll explain this further in an upcoming section.)

USDA loans

USDA loans, aimed at rural homebuyers, are generally assumable. Like FHA and VA loans, the buyer needs to meet the lender’s criteria and get approval. This can be a great option if your property is in a rural area and you’re looking to pass on favorable loan terms.

Conventional loans

Conventional loans are less likely to be assumable. Most of these loans have a “due-on-sale” clause, which requires the full loan amount to be paid when the property is sold. However, some conventional loans can be assumable in cases involving special circumstances, such as after a death or divorce. Older conventional loans might also be assumable, so it’s worth checking your loan documents or consulting with your lender.

Other loan types

If your loan doesn’t fall into these categories, or if you have a unique loan structure, it’s best to consult directly with your lender. They can provide specific information about the assumability of your loan. Under the right circumstances, some adjustable-rate mortgages (ARMs) and even jumbo loans may be assumable.

Remember, even if your loan is assumable, the process involves lender approval, and the buyer must meet certain criteria. Checking the specifics of your loan agreement and discussing your goals with your lender are crucial steps in finding out if your mortgage can be assumed.