How to Sell a House with an Assumable Mortgage
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In late 2021, mortgage interest rates dropped below 3%, making loans affordable for buyers who were looking to enter the housing market. In 2024, the average 30-year fixed interest rate is around 7%, increasing monthly mortgage payments and making loans more expensive. These higher interest rates may change how people shop for homes and affect how much the average buyer can afford.
One option for sellers who want to attract buyers in an uncertain market is to offer an assumable mortgage. This option comes with several benefits, but also some drawbacks and considerations. Learn more about this option if you need to know how to sell a house with an assumable mortgage.
What Is an Assumable Mortgage?
As a seller, an assumable mortgage allows you to transfer your current mortgage to your buyer, potentially allowing them to take advantage of your favorable interest rate.
Buyers like assumable mortgages when rates are high because they can enjoy low monthly payments. Sellers use assumable mortgages as promotional tools to attract buyers to their homes. They can also streamline the home sale process.
The main difference between an assumable mortgage and a traditional one is that the buyer does not need to apply for the mortgage to take it on. However, the lender still needs to approve the mortgage transfer and will vet the buyer to confirm their creditworthiness. This process will be similar to a traditional mortgage application.
Many organizations allow assumable mortgages. Your buyer might be able to assume your mortgage if you have a:
- Conventional loans from private lenders
- Federal Housing Administration (FHA) loan
- Department of Veterans Affairs (VA) loan
- United States Department of Agriculture (USDA) loan
Each loan will have different assumable terms, but they might be more flexible than you think. For example, while you need to be a veteran or active member of the military to apply for VA loans, you do not need to have served to assume one. Someone without military experience could assume a VA loan if the seller has one.
Benefits of Selling a House with an Assumable Mortgage
There are several reasons why a seller might promote an assumable mortgage when marketing their home. Here are a few benefits of going this route.
Attract More Buyers
An assumable mortgage can attract more buyers because it makes your home more affordable. For example, if a buyer is looking at two similarly-priced houses and the first one requires a standard mortgage but the second one has an assumable loan, the second house will be more affordable as long as the mortgage rates are lower. The buyer will pay less in interest over time and will enjoy lower monthly payments.
Offering an assumed loan could make your home more affordable if you live in a high-cost-of-living (HCOL) area.
Lower Interest Rates
Lower interest rates mean more people can afford to buy your home. Lenders calculate the debt-to-income ratio of buyers to identify their maximum monthly payments. Most lenders won’t approve a loan with a DTI higher than 36%. When interest rates are high, monthly payments increase.
This means buyers can’t afford as much as they could when rates are lower. Offering an assumable loan means your home can appeal to a larger pool of buyers. People can now afford your property without worrying about exceeding their DTI limits.
Simplified Financing Process
Because the seller already has the mortgage in place, the home sale process can be smoother. Buyers can skip many of the hoops they have to jump through to secure financing.
Not only is this less stressful for buyers, but it can also speed up the home sale. The seller might be able to request a smaller closing window and move out faster if they want.
How to Sell a House with an Assumable Mortgage
Homeowners still need to follow dedicated steps to list, market, and sell their properties with assumable mortgages. Here’s what you need to do if you want to use this option to attract more buyers to your home.
Verify Loan Assumability
The first step is to reach your mortgage contract and confirm that loan assumption is possible. Some loans will allow another party to assume a mortgage, while others limit what sellers can offer.
During this time, you also might want to decide whether marketing an assumable mortgage is a good option. You might not attract as many buyers if you had a large down payment when you purchased the home or if your house has increased in value. Your buyers would have to take on a second mortgage to cover the cost of the house, which could be too risky for some people.
Hire a Real Estate Agent
The next step is to interview real estate agents and choose the best one to work with. You will want to hire a seasoned Realtor who has marketed properties with assumable mortgages before. They will know how to communicate this opportunity to other real estate agents in your area and generate buzz around your property.
You can also work through some basic financial calculations with your agent to confirm that offering mortgage assumption is a strategic move. If your home has appreciated too much or the buyer would need too large of a down payment, l this option might not be as compelling as you think.
Gather Necessary Documentation
During traditional home purchases, buyers are responsible for collecting personal financial documentation and working with lenders to secure loans. However, assumable mortgages put more responsibility on sellers.
Gather any loan documentation you have, including your mortgage agreement, locked-in interest rate, lender contact information, and any relevant disclosures. Your real estate agent will need to review this information and your buyer will use it to contact your lender.
Pulling documentation ahead of time can streamline the sale process. You won’t have to worry about delays in major milestones because you can’t find your loan documents.
Market the Assumable Mortgage
The ability to assume an existing mortgage is a significant feature that can attract people to your house. In the same way that your agent might promote a big backyard or a large kitchen, they will also feature the mortgage contract in the marketing materials.
You and your Realtor can decide how much information you want to disclose to potential buyers before they tour the property. For example, your agent might mention that the house comes with an assumable mortgage but won’t disclose the interest rate or down payment needs unless the buyer’s agent reaches out.
Other agents might recommend making as much information public as possible so buyers can run mortgage calculations on their one. They can decide whether your interest rate gives them a reasonable monthly mortgage payment.
When you have open houses and showings, your agent should remind buyers and their agents that it is possible to take on the seller’s mortgage and review the benefits of doing so.
Qualify Potential Buyers
When a buyer makes an offer, your agent can review their finances and confirm that they would be a good fit to take on the existing mortgage. They should have a high credit score, a competitive down payment, and a high enough gross monthly income to keep up with the mortgage payments.
Realtors often qualify buyers through proof of funds like bank statements, but they might look at other financial statements when it comes to assuming a mortgage.
Your Realtor might qualify the buyers when they first make offers, but this process will eventually move to the mortgage lender, who will likely have a much stricter review process. They review your buyer’s credit score, debt, assets, and income before approving the transfer. This part occurs once you are under contract.
Negotiate the Sale
This part is no different from any other home sale negotiation. Your buyer will try to bring down the price and request concessions if there are any necessary repairs or issues. As the seller, you will try to get the highest possible price for your home and minimize the number of concessions you accept.
The fact that your buyer gets to take on an existing mortgage can potentially sway these negotiations in your favor. The buyer doesn’t want you to reject their offer, causing them to lose the favorable interest rate. You might be able to reject or significantly counter their requests without losing the deal.
Obtain Lender Approval
Once you and your buyer are under contract, your lender can start requesting the necessary paperwork to approve the assumed mortgage. The lending institution will confirm the buyer meets their credit and income requirements while reviewing any debts they have. Here are some of the documents the buyer will have to submit:
- W2 documents from the past two years
- Tax forms from the past two years
- Current pay stubs
- Proof of employment
- Asset statements related to savings, retirement accounts, and investments
- Other relevant documents that provide clarity on their financial status
These additional documents might include gift receipts from relatives, divorce decrees, or information about inheritances if the buyer received money because someone passed away.
These documents are often reviewed when applications want conventional mortgages and they are valuable for assumable loans as well.
Close the Sale
Once the loan assumption is approved and all other contingencies are met, you will be cleared to close. Your lender will draft the transfer documents and the title company will take care of other necessary documentation.
After closing, the buyer now owns the assumed mortgage and is responsible for paying the loan amount. This is also when other closing costs, like agent commissions, are paid and dispersed.
Important Considerations for Sellers and Buyers
While taking on the seller’s mortgage is appealing to buyers, especially if it has a low interest rate, there are some drawbacks to offering or accepting this option. Here are a few considerations to keep in mind if you are preparing to sell or are a buyer looking to assume a mortgage.
Seller’s Liability
In most cases, selling a house means you are no longer responsible for the property. However, if you let a buyer assume a mortgage and they do not keep up with their payments, you could be held liable.
Both the buyer and seller maintain responsibility for the home loan until it is completely paid off. This makes an assumable mortgage riskier for sellers because they need to completely trust their buyers.
You may be able to avoid this by asking your lender to release you from any liabilities related to the loan. In this case, you will not have any connections to the debt if your buyer doesn’t make their payments.
Buyer’s Creditworthiness
Your Realtor should vet any buyer who makes an offer on your house to confirm that they have the credit score, down payment, and necessary finances to get approved for the loan. However, this is extremely important for buyers who want to assume a mortgage.
If your buyer cannot take on your mortgage, they might need to apply for an FHA loan or look into conventional loans instead. This could delay the closing date as they secure financing or prevent them from buying your house entirely. The deal will be canceled and you will need to restart the marketing process to attract new buyers.
Legal and Financial Advice
Assuming a mortgage is more complex than accepting a bid where a buyer gets a standard home loan. Before you list your house, you might want to bring on a team of professionals to guide you through this process.
A lawyer can review the terms of your mortgage contract and explain the liability you might face with this option. A financial advisor can crunch the numbers and confirm this makes sense for both buyers and sellers. These experts, along with your Realtor, can help you make informed and strategic decisions.
That said, hiring lawyers and financial professionals costs money. Set a budget beforehand so you are prepared to pay for their services.
Ask Your Agent About Assumable Mortgages
Not many buyers or sellers know about assumable mortgages. Allowing your buyer to take on your mortgage could help them secure a low interest rate that makes the property more affordable. However, assuming a mortgage isn’t always easy and comes with risk to both buyers and sellers.
To find a Realtor who has experience with mortgage transfers, turn to FastExpert. You can find seasoned agents who are eager to review your options and help you make strategic choices. You can feel confident moving forward and promoting assumable loans to potential buyers. Hire a Realtor today and prepare to sell your home.
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