Take over a 2.8% mortgage? Here’s how assuming a home loan works.
High interest rates don’t have to mean a high payment. Here’s how buying a home with an assumable FHA or VA loan works, according to the National Association of REALTORS®, and which local homes have one.
When interest rates are high, the best rate in town may already be attached to a house. With an assumable mortgage, you take over the seller’s existing loan, including their interest rate, instead of getting a new loan at today’s rates.
How assuming a home loan works
- Confirm the loan. The seller’s loan must be assumable (FHA, VA or USDA). Sandra confirms the rate, balance and remaining term.
- Plan for the gap. You pay the difference between the price and the loan balance, usually in cash at closing.
- Qualify with the servicer. You apply with the company that services the loan and qualify much like a new borrower.
- Close. The loan transfers to you at the seller’s rate. Expect it to take longer than a typical closing.
You don’t have to be a veteran to assume a VA loan
VA loans can be assumed by veterans and non-veterans. Buyers must plan to live in the home; investors can’t assume these loans. If a veteran buyer assumes the loan, they can substitute their own VA entitlement so the seller’s is released. If a non-veteran assumes it, the seller’s entitlement stays tied to the loan until it’s paid off, which is something sellers should understand going in.
The low rate is a feature of the home, just like the kitchen or the yard. When rates are high, it can be the most valuable one.
The catch: the assumption gap
Most sellers have built equity, so the price is higher than the loan balance. That difference is called the assumption gap. In NAR’s reporting, nearly every buyer covered it with cash, and servicers denied buyers who tried to finance it. Know your number before you fall in love with the rate.
Clarksville-area homes with assumable loans
- 314 Birdsong Dr, Cadiz KY · $555,000 · assumable 2.8% VA loan
- 513 Summit View Cir, Clarksville · $494,000 · assumable 4.75% rate · gated community
- 1327 Gip Manning Rd, Clarksville · $285,000 · assumable 2.8% FHA loan · no HOA, fenced yard
Book a call with Sandra to get the balance, payment and cash-to-close on each one.
*Assumptions are subject to lender approval and buyer qualification. Rates and terms are not guaranteed; confirm current figures with Sandra and the loan servicer.
