Assumable Mortgage Loans

FHA, VA, and USDA loans are assumable: a qualified buyer takes over the seller’s existing note at the seller’s original rate and remaining term. Conventional loans are not, because the due-on-sale clause — expressly protected by the Garn-St. Germain Depository Institutions Act of 1982, 12 U.S.C. §1701j-3 — lets the lender accelerate the balance on transfer. When prevailing rates sit well above where they were a few years ago, a seller’s old note is an asset separate from the house, and capturing it can be worth more than any price concession (section “Home Loan Structures”).

Two mechanics decide whether it works.

Whether the seller is released

There are two kinds of assumption and only one protects the seller. In a simple assumption the buyer takes over payments without lender approval and the original borrower stays on the hook if the buyer defaults. In a creditworthiness assumption — the buyer applies, the servicer underwrites, and the lender approves — the original borrower is formally released from liability. Never do the first. As the buyer you want the approval anyway; as the seller you must have the written release, or you have sold your house and kept the debt.

The equity gap, and how you fund it

You assume the balance, not the price. On a $900,000 purchase against a $500,000 assumed note, $400,000 must come from cash or a second lien priced at today’s rates — which claws back part of the very spread you assumed the loan to capture. Blend the two rates before you celebrate: a $500,000 note at 3% plus a $400,000 second at 8% is a blended 5.2%, good but not 3%. Assumptions work best where the seller’s remaining balance is large relative to the price.

The VA entitlement trap, for sellers. A veteran selling a home with a VA loan assumed by a non-veteran leaves their VA entitlement tied up in that loan until it is paid off — which can be decades. Until then they cannot obtain another zero-down VA loan for their own next purchase. The fix is substitution of entitlement: only if the buyer is themselves VA-eligible and agrees to substitute their entitlement does the seller’s restore. Confirm that in writing before agreeing to an assumption, because the benefit you are handing the buyer may cost you your own.

Expect the process to be slow. Servicers handle assumptions as a low-priority back-office function, timelines of 60–120 days are common, and there is an assumption fee plus a funding fee on VA loans. Start the paperwork the day the offer is accepted.