An assumable mortgage is a type of financing arrangement whereby an outstanding mortgage and its terms are transferred from the current owner to a buyer. By assuming the previous owners remaining debt, the buyer can avoid obtaining their own mortgage. An assumable mortgage allows a homebuyer to assume the current principal balance, interest rate, repayment period, and any other contractual terms of the sellers mortgage. This type of mortgage can be simpler, easier, and less costly for the buyer.

All mortgages are potentially assumable, but lenders may attempt to prevent the assumption of a mortgage loan with a due-on-sale clause. Certain mortgage types are irrefutably assumable, such as those insured by the FHA, guaranteed by the VA, or guaranteed by the USDA. In theory, any type of home loan could be assumable, but currently only three types of loans typically have this feature: FHA, VA, and USDA. Conventional loans usually are not assumable, except in certain special circumstances.

The biggest potential advantage for the buyer is that the terms of the seller’s mortgage might be more attractive than the prevailing terms the buyer would be offered on a new mortgage. For example, if interest rates have risen since the seller originally purchased the home, a buyer might decide to buy a home with an assumable mortgage to take advantage of financing with a lower interest rate.

Overall, assuming an existing mortgage can be a good way for someone who needs financing to buy a home. However, assumable mortgages aren’t particularly common, and finding one can be a challenge.