How to pay the seller's equity when assuming a low-rate mortgage
When you assume a loan you pay the seller the difference between the price and the remaining loan balance, called the equity gap, at closing. Buyers cover it with cash, a second mortgage taken out at the same time, seller financing, or a mix.
The more of the gap you pay in cash, the more of the low rate you keep. Financing the whole gap at a high rate can cancel most of the benefit.
Your options
Cash
The simplest option, and the one that keeps your payment lowest. Savings, gift funds (where the servicer allows) and proceeds from selling another home all count.
A second mortgage
A lender makes a second loan behind the assumed first loan to cover part of the gap. Rates on second loans are higher than first mortgages, and the servicer of the assumed loan has to approve the combined debt as part of qualifying you.
Seller financing
The seller takes part of their equity as a note you pay back over time. This needs the servicer's approval and clear terms in the contract, and it suits sellers who don't need all their cash at closing.
Worked example
A $500,000 home with a $350,000 FHA loan at 3.0% and 25 years left. The equity gap is $150,000.
| How you cover the $150,000 gap | Monthly principal + interest | Blended rate |
|---|---|---|
| All cash | $1,660 | 3.0% |
| $50,000 cash + $100,000 second loan at 8.5% | $2,429 | ≈4.2% |
| $150,000 second loan at 8.5% | $2,813 | ≈4.7% |
| Compare: new 30-year loan at 6.5% with 10% down | $2,844 | 6.5% |
Second loans assumed at 8.5% over 30 years. Taxes, insurance and mortgage insurance are excluded. The blended rate is the balance-weighted average of the two loans. Illustrative only, not a quote.
The takeaway: with the gap fully financed, the monthly payment ends up close to a new loan's. The assumption pays off most when you can put real cash toward the gap, or when the balance is a large share of the price. Use the blended-rate calculator to try your own numbers.
Frequently asked questions
What is the equity gap in a loan assumption?
It's the purchase price minus the remaining balance of the loan you're assuming. You pay it to the seller at closing.
Can I get a second mortgage to cover the equity gap?
Often, yes. A lender can make a second loan behind the assumed first loan. The servicer has to approve the combined debt when it qualifies you, and second-loan rates are higher than first-mortgage rates.
Can the seller finance part of their equity?
Sometimes. The seller can carry a note for part of the equity if the servicer approves it and the terms are written into the purchase contract.
How do I calculate my blended rate?
Weight each loan's rate by its balance: (first balance × first rate + second balance × second rate) ÷ total borrowed. Monthly payments are the clearer comparison, because the loans have different terms.
Try the blended-rate calculator
Enter the price, loan balance and how you'll cover the gap to see your monthly payment and blended rate.
Open the calculators