An assumption of mortgage occurs when a buyer takes over the seller's existing mortgage, including its terms, interest rate, and remaining balance, rather than obtaining a new loan. This arrangement can be highly advantageous when the seller's mortgage has a significantly lower interest rate than what is currently available in the market. For example, if a seller has a 3.5% fixed-rate mortgage from 2021 and current rates are 7%, assuming that loan could save the buyer hundreds of dollars per month.
Not all mortgages are assumable. Most conventional loans include a due-on-sale clause (a type of acceleration clause) that requires the loan to be paid in full when the property is sold. However, government-backed loans are generally assumable: FHA loans and VA loans can typically be assumed by a qualified buyer with the lender's approval. USDA loans may also be assumable under certain conditions.
The assuming buyer must still qualify with the lender — proving they have the creditworthiness and income to handle the payments. The lender will review the buyer's credit, income, employment, and debt just as they would for a new loan application. An assumption fee (typically $500 to $1,000) is charged by the lender. The buyer must also cover the difference between the purchase price and the remaining loan balance, either in cash or through a second mortgage.
For example, if the home is priced at $400,000 and the seller's remaining mortgage balance is $280,000, the buyer needs $120,000 to cover the gap (plus closing costs). This gap can be a significant hurdle, as it effectively functions as a very large down payment. Some buyers use bridge loans or seller financing to cover part of the difference.
At closing, the title company ensures the assumption is properly documented and that the seller is released from liability on the mortgage (if the lender agrees to a release). If the lender does not release the seller, the seller remains on the hook for the debt even though they no longer own the property — a significant risk. The buyer takes over the remaining payments, and the deed transfers ownership while the original mortgage stays in place. At Beycome Title, we handle assumption closings with the same care and expertise as traditional purchases. Use our mortgage calculator to compare assumption savings versus a new loan.