Are Assumable Loans An Option

Wouldn’t it be great to buy a home today with a 3.8% interest rate instead of 6.5%? It’s possible, but unlikely. In a process called assumption, you buy a house and take over the seller’s mortgage. Government loans such as FHA and VA, usually permit this. I’ve never seen a conventional loan that offers this, so most existing loans don’t qualify. To assume the loan, the buyer must be approved just as if it was a new mortgage. The biggest problem is the down payment because that existing loan is now pretty low compared to the home’s value. Let’s take a house bought in Central Texas in 2015 at the median price of $270,000, with 5% down at 3.8%. The balance now is about $220,000. Since that same house today is worth around $540,000, the buyer needs to have a $320,000 down payment. While that’s certainly possible, most buyers are not putting that much down. So while assumption is an awesome thing, finding a scenario that works is quite difficult.

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