High interest rates are one of the biggest challenges that homebuyers face in the current market. With mortgages hovering above 6%, monthly payments are much less affordable than they were just a few years ago, leaving many buyers waiting for the market to shift. But there’s another option hiding in plain sight: assumable mortgages. These allow a buyer to take over a seller’s existing low‑rate loan, offering a more affordable path to homeownership without relying on future rate changes.
This guide walks through how assumable mortgages work, which loans qualify, and what buyers should know before pursuing one.
What is an Assumable Mortgage?
An assumable mortgage is when a buyer takes over a seller’s existing mortgage. That means the buyer inherits the terms of loan, such as:
- The interest rate
- The monthly payment
- Any remaining balance on the mortgage
Essentially, the buyer picks up the loan exactly where the seller left off – allowing them to get a much lower interest rate than what is available in today’s market. The rest of the process generally follows a conventional mortgage transaction: real estate agents still represent both parties, there are closing costs involved, the seller is released from all liability, and the buyer ultimately gets full ownership of the property.
Why It Matters
A lower interest rate can drastically cut a buyer’s monthly mortgage payments. For example:
- A $450,000 home with today’s rates may cost around $2,300/month.
- The same home with an assumable 3% mortgage could be closer to $1,300/month.
Effectively, the buyer would save $1,000 per month compared to taking out a new loan. That’s the power of an assumable mortgage.
How Do Assumable Mortgages Work?
When assuming a loan, the buyer takes over the seller’s remaining balance and must cover the seller’s equity.
Determining Seller Equity
When a buyer assumes a seller’s mortgage, they take over the seller’s remaining mortgage balance. This means the buyer needs to compensate the seller for the equity they’ve already built in the form of a downpayment.
Seller Equity = purchase price – remaining mortgage balance
Example:
- Purchase price: $500,000
- Remaining mortgage balance: $400,000
- Seller equity: $100,000
That equity becomes the buyer’s required down payment.
Covering the Equity
Buyers can cover this equity gap through:
- Cash
- Secondary financing
- Combining cash with financing
It’s important to note that although second mortgages also come with a higher interest rate, the “blended” interest rate with the assumed original mortgage still typically results in a lower interest rate than taking out a brand new mortgage. With Roam’s secondary financing, buyers can put as little as 5% down.
What Types of Mortgages are Assumable?
Not every mortgage can be assumed. By law, government-backed loans — FHA, VA, and USDA — are generally assumable:
FHA Loans
- All FHA-insured mortgages are assumable, as long as the buyer meets FHA credit and income standards.
- The servicer will review the buyer’s financials and confirm the loan is current before approving the assumption.
VA Loans
- VA loans are fully assumable, even by non-veterans, provided the buyer meets credit and income requirements.
- Some sellers prefer another veteran to assume the loan to preserve their VA loan entitlement.
USDA Loans
USDA loans can be assumed under two structures:
- Same Rates & Terms: often for family transfers
- New Rates & Terms: where the loan is re‑amortized
Conventional Loans
Conventional loans come from private financial institutions as opposed to the government. Most conventional loans are not assumable, but exceptions exist depending on the situation and lender guidelines.
Pros and Cons of Assumable Mortgages
Understanding both the advantages and limitations of assumable loans helps buyers decide whether an assumption is the right fit for them.
Pros
- Lower interest rates and monthly payments, giving buyers additional purchasing power.
- Long‑term savings, which can total to hundreds of thousands over the life of the loan.
- Lower closing costs, since a full loan origination is not required.
Cons
- Larger downpayments, since buyers must cover the seller’s equity. However, Roam provides secondary financing that enables buyers to put as little as 5% down.
- Private Mortgage Insurance (PMI), a monthly fee lenders charge on FHA loans to protect them against default. Even with PMI, it is typically cheaper to assume a low interest loan than get a mortgage at today’s rates.
- Limited availability, since not all mortgages are assumable. Buyers most know where to look to find assumable mortgages.
Roam helps coordinate the process end-to-end, from identifying assumable opportunities to moving the transaction swiftly through closing.
How to Assume a Mortgage
The process follows clear steps:
- Identify a home with an assumable mortgage
- Submit an offer to the seller
- Apply with the seller’s lender for assumption approval
- Prepare funds to cover the seller’s equity
- Close on the home, similar to a standard transaction
Roam supports buyers throughout this process to ensure clarity and efficiency.
Mortgage Assumptions vs. Subject-To Agreements
Although they may sound similar, these are two different structures.
In a Subject-To Transaction:
- The homebuyer takes over the property
- The seller retains the mortgage
- The buyer makes mortgage payments for the seller
In a Mortgage Assumption:
- The homebuyer gets full ownership of the property
- The seller’s name is removed from the mortgage and the buyer takes their place
- The seller has no liability for the mortgage
Assumptions are clearer, more secure, and preferable for most buyers and sellers.
Ready to Find an Assumable Mortgage?
Assumable mortgages provide a practical path to affordability in a high‑rate market. They can expand purchasing power, reduce monthly payments, and make homeownership more accessible.
Roam connects buyers to verified assumable listings and guides them through each step of the assumption process.
Explore assumable homes with Roam today
