Mortgage assumption allows a home buyer to take over the seller's existing mortgage, including the interest rate, remaining balance, and loan terms. Instead of getting a new loan, the buyer steps into the seller's loan.
FHA, VA, and USDA loans are generally assumable by qualified buyers. Conventional loans sold to Fannie Mae or Freddie Mac typically have due-on-sale clauses that prevent assumption.
The buyer must qualify with the lender, pay an assumption fee (typically $500 to $1,000), and meet all loan requirements. If done correctly, assumption can save a buyer thousands in closing costs and secure a below-market interest rate.
The Assumption Process
The buyer applies with the seller's lender. The lender reviews the buyer's credit, income, and assets. If approved, the buyer assumes the loan at its existing rate and terms. The seller is typically released from liability. The assumption is recorded at closing and the buyer takes over payments.
Qualification Requirements
The buyer must meet the same qualification standards as the original loan program. For FHA assumptions, the buyer must occupy the home and meet FHA credit requirements. VA assumptions require the buyer to qualify with the VA or have sufficient entitlement. USDA assumptions require income eligibility.
Which Loans Are Assumable
FHA loans originated before December 1989 are freely assumable. FHA loans after that date require lender approval and buyer qualification. VA loans are assumable by any buyer (veteran or non-veteran). USDA loans are assumable with lender approval. Conventional loans generally are not assumable due to due-on-sale clauses.
Assumption Fees
Lenders typically charge an assumption fee of $500 to $1,000 to process the application and paperwork. FHA assumptions may include a $500 fee plus any recording costs. VA assumptions have similar fees. The buyer usually pays these costs, which are significantly lower than refinancing costs.
Seller Liability Release
The seller wants a full release of liability so they are not responsible if the buyer defaults. VA assumptions can provide a full release if the buyer qualifies. FHA assumptions may require a specific release request. Always get the release in writing to protect yourself as the seller.
Finding Assumable Properties
Look for listings that mention assumable financing. Ask your agent to specifically search for homes with FHA, VA, or USDA loans originated in recent years. Contact the seller's lender to confirm the loan is assumable. The best candidates are sellers who bought recently at lower rates or have significant equity in the property.