Are Freddie Mac Loans Assumable? A Guide to Assuming a Freddie Mortgage

When buying a home, assuming the seller’s existing mortgage can sometimes be an appealing option. Taking over a low-rate loan spares you from having to qualify for new financing. This route may be especially enticing in a high mortgage rate environment.

But not all mortgages can be assumed by a new buyer. So are loans backed by Freddie Mac assumable? Here’s what you need to know about assuming a Freddie Mac mortgage.

What Does it Mean to Assume a Mortgage?

Assuming a mortgage means taking over responsibility for the seller’s existing home loan when you purchase their house You become liable for making the monthly payments, rather than having to apply for a new mortgage yourself

The original terms of the loan remain the same when you assume it This includes the interest rate, loan balance, and repayment term

Assuming a mortgage can allow you to obtain low-rate financing without having to go through the full mortgage approval process. This can make purchasing the home quicker and easier.

Are Freddie Mac Loans Assumable?

Traditionally, loans backed by the Federal Home Loan Mortgage Corporation (Freddie Mac) have been assumable under certain conditions. But Freddie Mac has tightened its assumption policy over the years.

Here is Freddie Mac’s current stance on investors assuming its home loans:

• Loans closed after December 1, 2004 – Cannot be assumed by a new buyer. The new buyer must qualify and obtain their own financing.

• Loans closed between 1991 and 2004 – Can only be assumed if the home is a primary residence, not an investment property. The buyer must qualify based on current underwriting standards.

• Loans closed before 1991 – Most still remain freely assumable provided the property will remain owner-occupied. Assumption eligibility depends on the original loan terms.

Freddie Mac Loan Assumption Process

If you plan to assume an older Freddie Mac mortgage, expect a rigorous approval process. Here are some key details on the assumption procedure:

• Review borrower qualifications – Freddie Mac will underwrite you as they would any borrower. You must meet all current income, employment, and credit standards.

• Check property condition – An appraisal may be required to confirm the home meets Freddie Mac collateral conditions. Deferred maintenance or other issues must be addressed.

• Non-owner occupancy – Loans can only be assumed for primary residences, not as investment properties.

• Assumption fee – A fee of 0.5-1% of the loan balance is typically charged for the assumption process.

• Closing costs – You will incur standard closing costs like title fees and recording charges.

Freddie Mac wants to ensure any assumed loan is still a strong credit risk. Their guidelines protect against situations like a seller transferring a mortgage to an unqualified buyer as a way to dispose of a problem property.

When Assumption Makes Sense

Assuming an existing mortgage generally only makes financial sense if:

• The rate is well below current rates – There needs to be a significant interest savings between the old loan and current ones. Typically a difference of at least 1% or more.

• It has a long term remaining – Maximum savings come from assuming a long-term mortgage, such as a 30-year loan still early in its lifespan.

• Closing costs are minimal – If assumption requires high upfront costs, it may not yield net savings in the end.

• You qualify easily – Given strict approval standards, assumption works best for well-qualified borrowers who can easily meet Freddie’s income and credit requirements.

Assuming a loan is not the right choice for everyone. But for the right buyer purchasing the right property, it can provide an opportunity to obtain financing well below current market rates.

Alternatives to Assuming a Freddie Mac Loan

If you can’t assume the seller’s mortgage, either due to the loan type or qualification difficulties, you still have options:

Take over payments temporarily: You can make payments on the existing loan in the interim between purchase and obtaining your own financing. This gives you time to qualify for the best new loan.

Replace with a new Freddie Mac loan: As the buyer, you can choose to apply for a new Freddie Mac mortgage. If you qualify, there is no obligation to assume the old seller’s mortgage.

Utilize other mortgage programs: Consider FHA, VA, or USDA loans which provide alternative financing. Or explore loans from other investors like Fannie Mae.

Buyer financing contingencies: Make your purchase offer contingent on successfully assuming the existing loan or obtaining suitable alternate financing within a set timeframe after the home purchase. This protects you from being stuck with a house you can’t actually finance.

While not always possible, assuming a Freddie Mac loan can be a win when the numbers align. Understanding the qualifications and process is key to navigating whether assumption makes sense in your home buying situation.