Assumable Mortgages In DC

Author: Susan Isaacs | The Isaacs Team

What’s an assumable mortgage, which mortgages are assumable, and how does the process work in the DC real estate market?

Assumable Mortgages Are Popular When Rates Rise


If a mortgage is assumable and carries a low rate, sellers are likely to realize a higher sales price when mortgage interest rates are high. Buyers benefit by taking over a lower-cost mortgage for the bulk of the purchase price, enjoying significant savings over the life of the loan.

What is an Assumable Mortgage?

An assumable mortgage is one that can be transferred from the current mortgagee to a qualified buyer, reassigning the terms agreed upon when the loan was first originated.

If a homeowner obtained a mortgage when rates were substantially below the current market rate, and the loan is assumable, buyers may be offered that lower rate under the terms of the existing mortgage, for the remaining balance of the original loan.

To determine if a mortgage is assumable, sellers must start by reading the loan contract, then contact your mortgage lender to confirm and define the terms, requirements, restrictions, costs and the process for assumption.

    How Do Assumable Mortgages Work?

    An assumable mortgage allows many home buyers to assume the current principal balance, interest rate, repayment period, and any other contractual terms of the seller’s mortgage.

    Assumable loans are desirable when interest rates rise, but buyers can only assume the balance of the existing loan. The longer the seller has paid toward the loan , the lower its balance will be, and buyers will have to make up the difference in cash or take out a second mortgage at prevailing market rates to cover the difference.

    The list price of a home in DC is likely to be higher than the remaining mortgage balance. The amount of that difference depends on the length of time the home has been owned, the terms of the existing mortgage loan, and the current market value of the property.

    Not all buyers can take advantage of a loan assumption opportunity. Investors, for instance, can not assume an FHA or VA mortgage loan as these programs are specific to owner-occupants.

    Here are the basic steps for offering of an assumable mortgage: 

    Step 1

    Seller determines if the loan is assumable, and initiates the formal process required by the existing lender to offer the assumption to buyers;

    Step 2

    Sellers must obtain formal permission from the current mortgage lender in order to offer loan assumption. Most mortgages include a “due on sale” clause, making the full balance of the loan due when the home is sold. A seller who wishes to offer their home for sale with the provision of an assumable mortgage first must secure permission from the lender so the ‘due on sale’ clause isn’t triggered.

    Sellers will also want the lender’s participation in transferring the mortgage (novation) because the buyer’s assumption in itself does not release the seller from responsibility for loan payments after the transaction closes. The lender must release the seller from liability in writing at the time of closing for the seller to be free of responsibility.

    When listing the home with a confirmed assumable mortgage, the seller should advertise the fact that the loan is assumable, and in what amount.

    Step 3

    The buyer must apply to the existing lender to assume the mortgage, just as they would make a loan application for any mortgage loan, except that qualification will be for the terms of the original loan, and show ability to pay cash or obtain a second mortgage (typically at a higher interest rate) to make up any difference between the balance of the existing loan and the purchase price (less down payment).

    The buyer must meet the lender’s standards of creditworthiness, income, debt-to-income ratio (DTI), etc. in order to qualify for one or both loans;

    Step 4

    At closing, the seller signs a warranty deed transferring title to the home to the buyer and the buyer signs a loan agreement and other lending documents assuming the existing loan. The buyer will also bring a second mortgage or cash to cover the difference between the loan assumed and the purchase price, if any. The lender releases the seller from further loan responsibility with the novation transfer.

    Zach & Pat Say

    “Susan responded to our inquiry immediately and took the time to get to know us and what we were looking for in a new home, while also thoroughly explaining the process and what we should expect. As we started the process of purchasing a new construction condo, Susan became our biggest advocate. She helped us deal with the condo developer to make sure that our concerns were addressed and asked the questions that we didn’t know we should be asking.”

    Is Every Mortgage Assumable?

    No. Only certain types of mortgages are assumable.

    The majority of conventional mortgages aren’t assumable, but it’s certainly worth buyers asking in the shopping phase of their home search. In the past, buyers have not concerned themselves with the type of mortgage loan the seller was carrying, but that’s now a question buyers should have at the top of their list. And sellers carrying assumable mortgages with advantageous terms should absolutely be having that conversation with their agents and using that perk as a top marketing item.

    There are some non-conforming conventional loans that are assumable and adjustable rate mortgages (ARMs) from Fannie Mae and Freddie Mac can be assumable, but these tend to be unicorns.

    According to Michelle Davis of Prosperity Home Mortgage, in crafting ARM programs, lenders start their basis of underwriting on Freddie Mac and Fannie Mae guidelines, so many ARMs carry the same restrictions against assumption that conventional 30 year-fixed loans carry. Davis says she doesn’t know of a single ARM that is assumable.

    Government-insured loans such as FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) are assumable as long as specific requirements are met and the seller obtains lender approval.

    Two Types Of Assumable Mortgages

    “Simple” and “Novation”. They have different implications for the  buyer, seller and lender:


    A Simple Assumption is a private transfer of responsibility for the mortgage from seller to buyer to which the mortgage lender isn’t privy.

    The lender doesn’t put the buyer through the underwriting process or participate in transferring the loan, so if the buyer fails to make payments or otherwise breaches the mortgage contract with the lender, both buyer and seller are liable.


    In a Novation assumption transaction, the mortgage lender agrees to and participates in the full transfer of liability from seller to the buyer for the existing loan.

    The lender is able to take the buyer through the underwriting process, so is willing to release the seller from all future responsibility for the mortgage.

    VA And FHA Assumable Mortgages

    • FHA loans are assumable when seller and buyer both meet the requirements for the assumption
    • The property must be used by the seller as their primary residence
    • Buyers must verify the FHA loan is assumable & apply as they would for an individual FHA loan
    • Seller’s lender will verify the buyer meets the qualifications, including creditworthiness.
    • Unless the seller is released from the loan, they’re still responsible for it and can be held jointly liable if the buyer defaults
    • The Department of Veterans Affairs offers mortgages to qualified military members and spouses of military members, but  assumption buyers don’t need to be a member of the military to qualify.

    • The lender and the regional VA loan office will need to approve the buyer for the loan assumption

    • For loans initiated before March 1, 1988, buyers don’t need VA approval to assume the mortgage

    Assumable Mortgage Advantages

    • A buyer can adopt financing with a lower interest rate than the current market rate for the balance of the existing loan so this can make your home more marketable when rates are considered high
    • Because the buyer is getting a lower rate for the principal balance for at least a chunk of the purchase price than they’d get buying another home with a new loan, and since assumable mortgages carry lower closing costs, borrowers can apply these savings to their second mortgage and the seller may be able to realize a higher sale price

    Assumable Mortgage Disadvantages

    • Buyers may need substantial down payments when the equity is high
    • Lenders may not cooperate when a second mortgage is needed
    • With two mortgages, the risk of default increases
    • Unless released, the seller can be held liable in the event of default by the buyer
    • For sellers with VA loans, VA entitlement can cause a potential issue. With a VA loan, the government guarantees repayment of part of the balance if the borrower defaults. The VA limits this guarantee, which it labels “entitlement.” Depending on the loan amount, some or all of the borrower’s entitlement remains tied up in the home with the assumed mortgage, even after the sale, so the seller might not have enough entitlement remaining to qualify for another VA loan to buy the next home. If the VA seller sells to another VA-eligible buyer, the buyer can then substitute their own entitlement for the seller’s and the VA restores the seller’s full entitlement.

    Do Assumable Mortgage Buyers Need An Agent?

    What do you think? A loan, assumption or otherwise, is just one part of a real estate transaction. It is still a home sale and purchase transavtion in which all the associated practices apply. But because an assumption sale and purchase can be even more complex than the average transaction, there is ample reason to have a real estate professional on your side.

    DC Assumable Mortgage Lenders

    We encourage you to consult with a local mortgage lender regarding this topic. Our lender list can be found on our Tools page.

    Sources for this article include:



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