Could You Buy a Home With a 3% Mortgage Rate Today?

Introduction

With 30 year rates at 7% (7.4% APR), a mortgage near 3% (3.25% APR) sounds impossible. For some buyers it is not. Some FHA, VA, and USDA loans can be taken over by a qualified buyer, and the seller's low rate comes with the home. There is one financial hurdle to understand first.

This article explains how assumptions work, what they may mean for affordability, and what buyers and sellers need to consider.

Quick answer: Sometimes, yes. A qualified buyer can take over a seller's FHA, VA, or USDA loan and keep its low rate. The main hurdle is the equity gap, the difference between the price and the loan balance, which the buyer pays in cash or with a second loan. An assumption may save hundreds of dollars per month compared with a new loan, although the actual savings depend on the terms and any additional financing.

If we haven’t met, I’m Cheryl Dillon, a residential Realtor serving Greater Seattle, the Eastside, and Snohomish County. I enjoy helping people make confident decisions about their homes and lifestyles. Whether you’re thinking about buying or selling, or simply exploring your options, I’d love to connect and help you consider what might be right for your next move.

What Is an Assumable Mortgage?

An assumable mortgage lets a qualified buyer take over the seller's existing home loan, including its interest rate, remaining balance, and remaining term. Instead of starting a new loan at today's rate, the buyer steps into the seller's loan with the lender's approval.

If the seller locked in at 2.875% (3.25% APR) in 2021, the buyer may keep that rate for the rest of the loan. In a 7 percent market, that difference can be dramatic.

Which Loans Are Assumable?

• FHA loans: Generally assumable by a creditworthy buyer who will live in the home as a primary residence.
• VA loans: Assumable by veterans and by non veterans who qualify with the lender, with important entitlement considerations for the seller.
• USDA loans: Can be assumable with approval, under program rules a lender should confirm.
• Most conventional loans: Typically include a due on sale clause, which means they generally cannot be assumed.

How Much Can an Assumption Save?

This illustration uses round numbers. Every situation differs, and the actual assumed payment depends on the original loan. Take a Snohomish County home priced at $725,000, where the seller has an FHA loan with a remaining balance of $430,000 at 2.875% (3.25% APR).

Option 1: A New Conventional Loan

• Down payment of 20 percent: $145,000
• New loan of $580,000 at 7% (7.4% APR)
• A lender can compare the monthly cost using current loan terms. 

• Option 2: Assume the Seller's Loan

• An assumable loan may carry a lower rate than a new mortgage. The servicer can confirm the rate, APR, balance and remaining term.
• Equity gap: $725,000 minus $430,000 equals $295,000
• A buyer may need cash or additional financing to cover the difference between the purchase price and remaining loan balance. Any second loan depends on lender terms.
• A licensed lender can compare the combined financing costs.

An assumable mortgage may save hundreds of dollars per month compared with a new loan. Any equity gap and second financing can affect potential savings, so ask a licensed lender to review the full picture.

What Is the Equity Gap?

The equity gap is the difference between the purchase price and the remaining loan balance. When you assume a loan, you pay the seller that difference. In many King and Snohomish County homes the gap is large, because prices have risen and sellers have paid down their balance for years. Buyers usually cover it with:

• Cash from savings or proceeds from selling another home
• A second mortgage or home equity loan, where available, usually at a higher rate than a first mortgage
• A combination of both

Not every lender offers second financing for assumptions, and the combined payment must still fit your budget and qualify. I recommend talking with an experienced lender before writing an offer on an assumable home. I’m always happy to connect you with one of my trusted, vetted lenders if you need a referral. Many lenders are licensed in multiple states, so even if you're purchasing a home outside of Washington, I may be able to connect you with someone who can help.

How Does an FHA Assumption Work?

HUD requires a creditworthiness review of the buyer for FHA assumptions, completed by the lender or servicer that holds the loan. The buyer generally must intend to live in the home as a primary residence. Assumptions take longer than a typical purchase, so build extra time into your purchase agreement.

Release of Liability for FHA Sellers

This part is critical for sellers. Even when a creditworthy owner occupant assumes your FHA loan, you can remain liable for the debt unless you obtain a formal release. Confirm the release is part of the closing, rather than a promise for later.

How Does a VA Assumption Work?

VA assumptions follow similar steps with one major addition: the seller's VA entitlement.

Who Can Assume a VA Loan?

A non veteran can assume a VA loan if the lender approves the buyer's credit, income, and occupancy. A veteran buyer can do the same, and has an additional option that matters to the seller.

What Happens to the Seller's Entitlement?

• If a veteran buyer substitutes their own entitlement, the seller's entitlement can be restored for future use.
• If a non veteran assumes the loan, the seller's entitlement generally stays tied to that loan until it is paid off. That can limit the seller's use of the full VA benefit on the next home.

Sellers should also request a release of liability. Veteran sellers should talk with their lender about entitlement before accepting an assumption offer. It is one of the most overlooked details in these transactions.

What Are the Benefits and Tradeoffs for Buyers?

Benefits

• A potentially much lower interest rate for the life of the loan
• A lower monthly payment and less interest paid over time
• A remaining term that may be shorter than 30 years, which builds equity faster

Tradeoffs

• A large equity gap may require significant cash or a second loan
• Assumptions take longer than a typical purchase, so plan for extra time
• Fewer homes qualify, so your search is narrower
• FHA loans may carry mortgage insurance that continues with the loan

What Are the Benefits and Tradeoffs for Sellers?

Benefits

• A low rate loan can make your home stand out when inventory is high
• It may attract buyers who could not otherwise afford your price
• It is a powerful marketing message

Tradeoffs

• Without a formal release of liability, you may remain responsible for the loan
• VA sellers may have entitlement tied up if a non veteran assumes
• The process takes longer and needs careful coordination

How Do I Find Homes With Assumable Loans?

Assumable loans are not always obvious in a listing. Here is how I help clients find them.

• Search listing remarks for terms like "assumable" or "assumable loan"
• Look at homes purchased between 2020 and 2022 that may have FHA or VA financing at low rates
• Ask the listing agent directly about the loan type and whether the seller is open to an assumption
• Talk with a lender early to confirm you qualify and to plan for the equity gap
• Connect with a Realtor who has connections that can provide you with a list of homes that have assumable loans and fit your criteria

Assumptions require coordination between the buyer, seller, servicer, and sometimes the VA, so working with an agent who has handled the process helps prevent delays and surprises.

What Are the Most Common Assumption Mistakes?

• Writing an offer before a lender confirms how the equity gap will be financed
• Sellers closing without a formal release of liability
• Veteran sellers overlooking how a non veteran assumption ties up their entitlement
• Assuming every conventional loan can be assumed, since most have a due on sale clause
• Underestimating the extra time an assumption takes

Frequently Asked Questions

What is an assumable mortgage?

An assumable mortgage allows a qualified buyer to take over a seller's existing loan, including the interest rate, remaining balance, and remaining term, with the lender's approval.

Which loans are assumable in Washington state?

FHA, VA, and USDA loans are generally assumable with conditions and lender approval. Most conventional loans include a due on sale clause and are typically not assumable.

Can a non veteran assume a VA loan?

Yes, if the lender approves the buyer's credit and income. The seller's VA entitlement generally stays tied to the loan until it is paid off, unless a veteran buyer substitutes their own entitlement.

What is the equity gap in an assumable mortgage?

The equity gap is the difference between the purchase price and the seller's remaining loan balance. The buyer covers it with cash, a second loan, or both.

How long does a loan assumption take?

Longer than a typical purchase, and the length depends on the servicer. Build extra time into your purchase agreement, and ask the servicer early for a realistic timeline.

What are the risks of letting a buyer assume my loan?

Sellers can remain liable for the loan without a formal release of liability, and VA sellers may have entitlement tied up if a non veteran assumes. Confirm the release and entitlement details before closing.

How do I find homes with assumable mortgages near Seattle?

Search listing remarks for "assumable," focus on homes purchased with FHA or VA loans in recent years, ask listing agents directly, and work with a lender who handles assumptions.

Ready to Explore a Lower Rate?

If today's rates have you feeling stuck, an assumable loan may open a door you did not know existed. And if you are a seller with a low rate FHA or VA loan, it may be your home's best selling feature.

Wherever you are in your home journey, you don’t have to have everything figured out before reaching out. I also help people connect with trusted, carefully vetted real estate agents across the country when their plans take them beyond my local area. If you have questions, would like to talk through your options, or need an introduction to an agent in another area, I’d be glad to connect. We can take it one step at a time. You don’t have to do this alone. I’m here to help.

Phone: 425.954.5622

Email: Cheryl@CherylDillonRealEstate.com

Website: CherylDillonRealEstate.com

Cheryl Dillon is a licensed REALTOR® in the state of Washington with eXp Realty.

* Rates shown are national averages for illustration, not a loan offer. A loan’s APR will be higher. Ask a licensed lender for your rate and APR.