Is taking over the seller’s 3% loan worth it?

Assume the loan

$331,742

Assuming the seller’s 3.25% loan saves $331,742 in lifetime interest vs getting a new 6.75% loan. You’ll need $122,200 in cash at closing ($120,000 equity to the seller + $2,200 in fees).

How loan assumption works

Only VA, FHA, and USDA loans are assumable. Conventional loans contain a "due-on-sale" clause that triggers the full balance when the property transfers.

You still have to qualify. The lender will run your credit, verify income/assets, and either approve or deny the assumption. Standards are similar to a new loan.

You inherit the seller’s remaining term. If the seller is 5 years into a 30-year loan, you start with 25 years left — not a fresh 30. This often shrinks the savings substantially because the rate-arbitrage period is shorter.

The big catch — equity gap: if the home has appreciated, the sale price often far exceeds the loan balance. You make up the difference in CASH at closing. Example: $500k home with $200k loan balance = you bring $300k cash. This is why assumptions often only work in flat markets or with a second mortgage to bridge the gap.

VA-specific: if a non-veteran assumes a VA loan, the seller’s VA entitlement stays tied up until the loan is paid off. Most veteran sellers won’t agree to this. Veteran-to-veteran assumption is fine.

Why it’s hot in 2024-2026: millions of homeowners locked in sub-3.5% rates in 2020-2021. With current rates 6.5%+, those loans are valuable assets. The catch is finding a deal where the equity gap is bridgeable.

Process: seller’s servicer must approve the assumption. Typical timeline 30-60 days. Assumption fee $300-1,500 + the VA funding fee (0.5%) for VA loans. For FHA the assumption requires HUD approval and full underwriting. For USDA, similar to FHA. Get loan-level details from the seller’s servicer before going under contract.