Learn personal and professional finance terms to keep you in the know
An assumable mortgage is a home loan that can be transferred from the seller to the buyer, allowing the buyer to take over the existing loan's interest rate, balance, and repayment terms rather than obtaining new financing. This provides a significant advantage when current market interest rates are higher than the rate on the existing loan, potentially saving the buyer thousands of dollars over the life of the loan.
FHA, VA, and USDA loans are generally assumable, most conventional loans are not and feature a "due-on-sale" clause that prevents it. To execute an assumption, the buyer must still qualify for the loan with the lender, and the seller must obtain a formal release of liability. In addition, buyers must be prepared to cover the "equity gap" (as applicable), the difference between the purchase price and the remaining loan balance with cash or a second mortgage. As an example, if you agree to purchase a home for $200,000 and assume a mortgage with $100,000 remaining on the loan, you must provide $100,000 to finalize the purchase.
