Assumed Mortgage: A Comprehensive Guide

An assumed mortgage is a unique real estate transaction where a buyer takes over the seller's existing mortgage, including the remaining balance, interest rate, and terms. This can be an attractive option for both parties, particularly in a fluctuating interest rate environment like 2026. For buyers, it might mean securing a lower interest rate than current market offerings, potentially saving tens of thousands of dollars over the life of the loan. For sellers, it can make their property more appealing to a broader range of buyers, especially those who might struggle to qualify for a new mortgage.

However, the process of an assumed mortgage isn't always straightforward. It typically requires lender approval, as the lender needs to assess the new buyer's creditworthiness. If the buyer defaults, the original seller might still be liable unless a novation agreement is in place, fully releasing them from the debt. Understanding these nuances is crucial before considering such a transaction.

How an Assumed Mortgage Works

When a buyer assumes a mortgage, they essentially step into the shoes of the original borrower. This means they agree to all the original terms, including the monthly payment, interest rate, and repayment schedule. The first step usually involves the buyer and seller agreeing on the terms of the assumption. This often includes a down payment to the seller for the equity they've built up in the property.

Next, the buyer must apply to the original lender for approval. The lender will review the buyer's financial qualifications, including their credit score, income, and debt-to-income ratio, much like they would for a new mortgage application. Not all mortgages are assumable; government-backed loans like FHA and VA loans are typically assumable, while conventional mortgages often are not, or they may include a