Loan Assumption vs. Mortgage Assumption: What’s the Difference?

You often hear the terms loan assumption and mortgage assumption being used interchangeably. Most people assume they mean the same thing, but while these terms are closely related, they aren’t exactly the same. It’s important for homeowners and sellers to understand the difference when navigating a real estate transaction. Below, we break down the distinction in simple terms.

What is Loan Assumption?

Loan assumption means a borrower takes over the responsibility for an existing loan from someone else. Here’s how it works in real estate: a buyer assumes the seller’s mortgage and agrees to continue making payments under the original loan’s terms. In this scenario, the buyer steps into the seller’s shoes, accepting the existing interest rate, loan balance, and repayment schedule.

However, “loan assumption” is a broad term—it doesn’t have to be mortgage-related. It can also apply to other types of loans, such as personal loans or vehicle loans.

Key Points of Loan Assumption:

• The new borrower takes over loan payments and terms.
• Applies to mortgages, auto loans, and personal loans.
• Not exclusive to real estate.

What is Mortgage Assumption?

Mortgage assumption refers specifically to taking over an existing home loan that has a contractual clause allowing the loan to be transferred to another borrower. Typically, these are government-backed loans such as FHA, VA, or USDA mortgages. These loans allow assumption, subject to lender approval and the new borrower’s qualifications.

When a buyer assumes a mortgage, they preserve the original interest rate and loan terms. This is especially beneficial when interest rates have risen since the original loan was issued, helping buyers avoid higher current market rates.

In contrast, most conventional mortgages are non-assumable due to a “due-on-sale” clause, which requires the loan to be paid off when the property is sold. In those cases, buyers must secure new financing.

Key Points of Mortgage Assumption:

• Applies specifically to certain home loans (FHA, VA, USDA).
• Allows the buyer to take over the seller’s existing loan terms.
• Subject to lender approval and borrower qualification.
• Conventional mortgages are generally not assumable.

Loan Assumption vs Mortgage Assumption: The Bottom Line

Loan assumption is a general term for transferring any loan. Mortgage assumption refers specifically to certain home loans (mainly government-backed) that are designed to be assumable. Mortgage assumption allows buyers to take advantage of existing favorable loan terms—such as a lower interest rate—which can be a win-win for both buyers and sellers in today’s real estate market.

How to Find Homes with Assumable Mortgages

If you’re searching for homes with assumable mortgages, platforms like Assumable let buyers filter listings to show homes with assumable FHA, VA, or USDA loans. This saves you time and helps ensure you’re eligible to assume the loan. Keep in mind, you’ll still need to qualify with the current lender before the assumption can be finalized.

Ready to Start Your Search?

Try the Assumable app to find the best available properties with assumable mortgages near you and benefit from potentially lower interest rates!