Assumable Mortgages: A Break for Home Buyers Amid Rising Rates and Prices

As mortgage rates continue to rise and home prices reach record highs, home buyers are seeking relief through assumable mortgages. These once-obscure loans allow buyers to take over the seller’s mortgage, providing a cheaper financing option in a competitive market.

The number of assumable mortgages has seen a significant increase in recent years, with FHA loans leading the way. In 2023, 3,825 FHA loans were assumed, compared to 2,221 in 2022. VA loan assumptions also saw a steep spike, from 308 in 2022 to 2,244 in 2023.

Assumable mortgages are government-backed loans that the seller can transfer to the new owner when a property is sold. The new owner assumes the remaining mortgage payments, loan balance, payment schedule, interest rate, and escrow account under the same conditions.

To qualify for an assumable mortgage, buyers must meet credit, debt, and income requirements set by the government agencies and lenders. The loan can only be financed through the seller’s existing lender, with approval from the lender.

While assumable mortgages offer the advantage of locking in a cheaper interest rate and lower monthly payments, buyers often need a significant amount of cash to cover the difference between the sales price and the loan balance. Sellers, especially military veterans, may lose their VA loan benefit if the loan is assumed by another buyer.

Overall, assumable mortgages provide an attractive option for buyers looking to save on financing costs in a challenging real estate market. With the potential for lower interest rates and faster settlements, these loans are becoming a popular choice for savvy home buyers.