About 25% of U.S. mortgages are assumable — meaning a buyer can take over the loan at its original rate and terms. VA and FHA loans are assumable; conventional loans almost never are. With millions of 2020-2021 mortgages locked in at 2.5-3.5%, mortgage assumption is the rare financing move that can cut your all-in payment by 30-40% versus a new loan at today's rates.
Worked example: Seller has a $280,000 VA loan balance at 2.75% with 26 years left. House is worth $425,000. You assume the $280K loan (P&I $1,285/mo). You need to pay the seller $145K cash or finance it via a second lien at today's rates. Bring $50K cash, finance $95K as a second at 8.5% / 15 years = $936/mo. Blended payment = $2,221/mo. A new $375K purchase loan at 7% would be $2,494/mo P&I — assumption saves $273/mo.
Which loans are assumable
- VA loans: assumable by anyone (doesn't need to be a veteran). Funding fee applies to the assuming borrower.
- FHA loans: assumable by owner-occupiers. Originated before 1986 may be freely assumable; after 1986 require creditworthy assumption.
- USDA loans: assumable with approval.
- Conventional: almost never assumable. Contains a due-on-sale clause.
The equity bridge problem
The biggest obstacle to assumption is funding the difference between the loan balance and the purchase price. On a home that's appreciated, that gap can be $100K-$200K+. Options:
- Cash from buyer. Cleanest but requires serious savings.
- Second mortgage or HELOC. Blended rate math above.
- Seller financing. Seller takes back a note for the equity gap at a negotiated rate. Growing in popularity.
VA entitlement substitution
If a non-veteran assumes a VA loan, the seller's VA entitlement stays tied up until the loan is paid off. The seller cannot get a new VA loan until that happens. Veterans selling assumable loans strongly prefer veteran buyers who can substitute their own entitlement.