Mortgages & Home Loans Financing Your Home Purchase What Is an Assumable Mortgage? Definition and Examples of an Assumable Mortgage By Aly J. Yale Updated on November 29, 2021 Reviewed by Somer G. Anderson Reviewed by Somer G. Anderson Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. learn about our financial review board In This Article View All In This Article What Is an Assumable Mortgage? How Do Assumable Mortgages Work? Pros and Cons of Assumable Mortgages How To Get an Assumable Mortgage Photo: monkeybusinessimages / Getty Images Definition An assumable mortgage is an existing loan held by a seller that can be taken over by a new borrower. A homebuyer would simply take on the seller’s existing mortgage commitment instead of applying for a new loan to purchase the property. What Is an Assumable Mortgage? A homebuyer "assumes" responsibility and liability for a mortgage when they take over this type of mortgage. The original borrower—the seller—is replaced on the loan by this new individual, who is then responsible for paying off the loan and for meeting all of its other requirements. An assumable mortgage is financing in lieu of taking out a new loan, the proceeds from which would pay off the first mortgage. How Does an Assumable Mortgage Work? As an example, let's say Joe wants to buy Mary's home. Her existing mortgage is assumable, so Joe can simply approach her lender to take over the loan. But lenders won't simply turn over the keys to a new borrower. Joe must meet certain qualifications, and Mary's lender must approve the change. The lender will still require a credit check, a loan application, and other data before the mortgage can be assumed, but it won’t be setting any new terms or rates. It's simply determining whether the buyer can stay current on the loan if approved. Note The new borrower is responsible for all monthly payments moving forward when a mortgage loan has been transferred or assumed. Pros and Cons of Assumable Mortgages The most significant advantage of an assumable mortgage is that you’re essentially grandfathered into an existing mortgage loan. This could open the door to homeownership if you don’t have a good chance of getting approved for your own loan. Note An assumable mortgage can help if your credit wouldn’t qualify you for an attractive interest rate on a new loan. It could save you thousands over the life of the loan if the existing rate is lower than what you’d be eligible for on your own loan. A downside to assumable mortgages is that they often won’t cover the entire home purchase. The owner has likely reduced their loan balance at least somewhat over time, so it won't be enough to cover the property’s sale price. You might need cash or a second loan to cover the difference. This is basically your “down payment." Note The less equity the seller has in the home, the better. This means you’ll need to cover less of the home’s price out of pocket or with an additional loan. How To Get an Assumable Mortgage Sellers and their agents sometimes mention in MLS listings or advertisements that their home’s mortgage is assumable, so check listing descriptions. Look at sites like TakeList.com that offer lists of assumable homes on the market. Note You or your agent can speak to the seller about their mortgage loan if there’s a home you’re particularly interested in. A quick call to the lender can confirm if the loan is assumable—and if you might be eligible to take it on. You’ll have to meet certain income and credit-related requirements that can vary by loan type and lender, and fees will be charged as well. You must pay a funding fee of 0.5% of the assumable loan’s balance on a VA loan, and the assumption must be approved by the VA or the loan’s lender in advance. Note You don't have to be a member of the military services or a veteran to assume a VA loan. As with any mortgage process, you'll incur various costs for the processing and transfer of the loan, including: A VA funding feeAn assumption feeRecording expensesCredit report pullsTitle search and insuranceEscrow costs You might also have to guarantee the lender that the property will be your primary home. Key Takeaways An assumable mortgage is an existing loan held by a homeowner who can transfer the loan to a buyer with the lender’s approval when they sell.Interest rates and all other loan terms transfer to the buyer as-is, and this can be beneficial if the assumable mortgage comes with a comparatively low interest rate.You must still qualify for an assumable mortgage by providing your personal financial information and undergoing a credit check.Most conventional mortgages are not assumable. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Cornell Law School Legal Information Institute. "Assumable Mortgage." Accessed July 29, 2020. Rocket Mortgage by Quicken Loans. "What Is An Assumable Mortgage?" Accessed July 29, 2020. Quicken Loans. "What Is Mortgage Assumption and Why Might You Do It?" Accessed July 29, 2020.