Loan Assumption: How Assumable Mortgages Work — and When to Use One

In a rising interest rate environment, loan assumption is one of the most underrated strategies for homebuyers and sellers alike. By taking over the terms of an existing mortgage — instead of applying for a new one — buyers can potentially lock in ultra-low rates from years past, and sellers can gain a powerful marketing edge.

But assumable mortgages aren’t available to everyone, and navigating the process can be trickier than a traditional loan. This guide breaks down what a loan assumption is, how it works, who qualifies, and when it makes the most sense.

What Is a Loan Assumption?

A loan assumption is when a buyer takes over (assumes) the seller’s existing mortgage, keeping the same:

• Interest rate

• Monthly payment (on the remaining balance)

• Amortization schedule

Instead of applying for a new loan, the buyer inherits the terms of the original loan — subject to lender or servicer approval.

What Makes a Mortgage “Assumable”?

Not all mortgages can be assumed. For a loan to be assumable, the original contract must allow it without triggering a due-on-sale clause (which would normally require full repayment when the home is sold).

Here’s a breakdown of common loan types:

→ Want to see which option you qualify for? Try our
Loan Compass — we’ll evaluate FHA, VA, USDA, and conventional eligibility in one go.

Why Assume a Mortgage?

For Buyers

• Lower interest rate: Lock in rates as low as 2–4% from pre-2022 loans

• Lower closing costs: No lender origination or underwriting fees

• No new appraisal (in some cases): Lender may waive this step

For Sellers

• Marketing advantage: Attract rate-sensitive buyers

• May preserve home price in a high-rate market

• Faster closing (with right preparation)

Loan Assumption vs. Traditional Mortgage: A Real Example

Here’s how a loan assumption can impact your monthly payments and total interest compared to taking out a brand-new mortgage at today’s rates:

In this scenario, the buyer must bring $100,000 to closing — either in cash or via a second loan — to cover the gap between the assumed mortgage and the home’s purchase price. Even with that challenge, the long-term interest savings can exceed $200,000.

The Catch: Equity Gaps and Down Payments

Here’s the major caveat: when you assume a loan, you’re only taking over the remaining balance — not the full purchase price.

Example:

• Seller owes $210,000 on a 30-year FHA mortgage at 3.25%

• Home is selling for $310,000

• Buyer assumes the loan — but must pay $100,000 upfront (via cash or secondary financing)

If the buyer doesn’t have that much in liquid funds, they may need a second mortgage to cover the difference — and second liens often carry higher interest rates.

Use our Loan Affordability Calculator to estimate how much home you can afford based on your income, monthly debts, and down payment. If a loan assumption requires you to bring a large cash amount or take a second loan, this can help you understand whether the combined cost still fits within your budget.

How the Loan Assumption Process Works

The steps differ slightly by loan type and lender, but here’s the typical flow:

1. Buyer applies with the current lender
   The lender will require income, credit, and debt-to-income (DTI) documentation.

2. Seller completes authorization and release forms
   For FHA, this includes HUD Form 92210. VA may require a Release of Liability.

3. Lender reviews and approves the assumption
   Expect a 30–60 day window, depending on the servicer’s process.

4. Buyer pays the equity gap
   Via cash or a second loan — there’s no new first mortgage.

5. Transfer of title and closing
   Title transfers, escrow settles, and assumption is complete.

Extra Notes for FHA and VA Assumptions

For FHA loans, buyers and sellers must complete HUD Form 92210 (Request for Credit Approval) and Form 92211 (Release of Personal Liability). The process generally takes 30–45 days, depending on how responsive the lender or servicer is.

For VA loans, a Certificate of Eligibility (COE) is not required by the buyer — but the seller’s entitlement may stay tied up in the loan unless the buyer is also a veteran who substitutes their entitlement. This can affect the seller’s ability to use their VA benefit again in the future.

Always ask the lender about these documents and timelines early, as some servicers are much slower than others.

Seller Risks and Considerations

Sellers need to proceed carefully — especially with VA loans. While assumptions can boost buyer interest, there are hidden risks:

• Loss of VA entitlement: If the buyer isn’t a veteran or doesn’t restore entitlement, the seller’s VA eligibility remains tied to the loan.

• Delayed closing: Some servicers move slowly; plan for 45–60 days.

• No fresh appraisal: Buyers may not discover hidden condition issues without one.

• Limited buyer pool: Not every buyer can afford a large cash gap or second mortgage.

Selling to a buyer using an assumption? Review our
Home Purchase Contingencies Guide to understand what protections to include in your contract.

When Does a Loan Assumption Make Sense?

A loan assumption is most attractive when:

• The seller has a low fixed interest rate

• The buyer has enough cash to cover the equity gap

• The market has high current rates (i.e. 6–7%+)

• Both parties are willing to work through lender requirements

It makes less sense when:

• The remaining loan balance is very small

• The seller’s rate isn’t significantly better than market

• The buyer needs 90–95% financing (e.g. first-time buyer with low down payment)

Frequently Asked Questions (FAQs)