But I Saw it on TikTok!!! It Must Be True!!!
What is an "ASSUMABLE MORTGAGE"
An assumable mortgage is a type of home loan that allows a buyer to take over (or "assume") the seller's existing mortgage,
including its terms, interest rate, and remaining balance. The buyer essentially steps into the shoes of the seller as the borrower for the loan.
~ Key Features of Assumable Mortgages ~
-Lower Interest Rates: If the original mortgage has a lower interest rate than current market rates, the buyer can benefit from the lower rate, making the home more affordable.
-Limited Loan Options: Not all mortgages are assumable. Most assumable loans are government-backed loans, including:
-FHA loans (Federal Housing Administration)
-VA loans (U.S. Department of Veterans Affairs)
-USDA loans (U.S. Department of Agriculture)
~ Conventional loans are typically not assumable unless explicitly allowed by the lender ~
-Lender Approval: The lender must approve the assumption. The buyer usually has to meet the lender's eligibility requirements, such as creditworthiness and income verification.
-Equity Payment: If the seller has built up equity in the home (the difference between the home's market value and the mortgage balance), the buyer will typically need to pay the seller this amount upfront or finance it with a secondary loan.
-No Appraisal Required: Because the loan terms remain the same, the buyer may not need to pay for a new appraisal, reducing closing costs.
-VA Loan Note: For VA loans, the assumption process can transfer the seller’s entitlement (used to secure the VA loan) to the buyer, provided the buyer is also VA-eligible. If not, the seller’s entitlement might remain tied to the assumed loan until it's fully repaid.
~Advantages~
-Cost Savings: Lower interest rates and fewer closing costs can make homeownership more affordable.
-Faster Process: The assumption process can be quicker than securing a new loan.
~Disadvantages~
-Equity Requirement: Buyers need significant upfront cash or financing to cover the seller's equity.
-Limited Availability: Not all mortgages are assumable, and buyers may face challenges finding such homes.
-Loan Terms Limitations: The buyer inherits all the loan's terms, including remaining duration and payment structure.
Assumable mortgages can be particularly attractive in a high-interest-rate environment, as buyers can lock in lower interest rates from the original loan. However, they require careful planning and negotiation between buyers, sellers, and lenders.
States with the Highest Share of Assumable Mortgages:
According to data from Realtor.com, the states with the highest percentage of assumable mortgages are:
-
-
-
- Alaska: 39.3%
- Wyoming: 34.4%
- Virginia: 34.1%
- Nevada: 32.8%
- Oklahoma: 32.5%
- Maryland: 32.1%
- Georgia: 31.5%
- Louisiana: 31.5%
- New Mexico: 31.4%
- Delaware: 30.8%
-
-
These higher percentages are often due to the prevalence of FHA and VA loans in these regions.
Conclusion
While assumable mortgages offer significant benefits, they are not highly common and can be challenging to navigate due to lender requirements, upfront costs, and limited awareness.
However, for buyers who qualify and can cover the equity gap, assuming a mortgage can be an excellent way to lock in favorable terms in a difficult market. Working with knowledgeable lenders, real estate agents, or specialized platforms (like Roam or AssumeList) can greatly improve the process.