An assumable mortgage allows a buyer to assume a loan directly from a seller. While this can be complicated and it is not always possible, assumable loans can be a big selling point for sellers, and potentially help buyers save thousands.

When a buyer takes over an assumable mortgage, they receive the same repayment period, balance, interest rate, and all other terms of the loan rather than getting a new loan. For example, if the seller originally had a 30-year mortgage for $250,000 with a 3% interest rate, and has since paid down the loan to $185,000 with 20 years remaining, the buyer will take over a 20-year loan of $185,000 at 3%, regardless of current mortgage rates.

While any home loan can be assumed by a borrower, in theory, there are really only two loans that allow for this: FHA loans and VA loans. You cannot assume the majority of conventional mortgages.

Assuming a loan can offer many advantages to home buyers, as it may have a much lower interest rate with reduced costs and a lower payment.

Mortgage May Not Cover Home Price

Another consideration is the fact that the loan you assume may not be sufficient to cover the cost of the home. In this case, you may be required to pay more in cash to the seller or obtain financing in some other way.

Seller Release of Liability

Sellers can benefit from a buyer taking over the mortgage, as it can make the home more attractive to potential buyers if the loan has a lower rate than current mortgage rates, or if the seller has little equity. Unfortunately, assumable mortgages have a catch: the seller may be responsible for the debt after the buyer takes over the loan if the lender does not release the seller. Always make sure you understand if you will still be liable for your mortgage if you allow a buyer to assume it.