Assumable Mortgage Guide: What You Need To Know About FHA, VA, And USDA Loans
- Philip Bennett (NMLS # 1098318)
- 1 day ago
- 13 min read
High mortgage rates make homeownership feel out of reach for many buyers today. We know this struggle hits hard because interest rates have climbed to levels we haven't seen in decades.
Current rates often go above 7% while some existing loans still carry rates as low as 2-3%. That's a huge gap that can break a budget.
Our guide will show you how assumable mortgages can help you get a lower interest rate. You simply take over someone else's existing loan terms. This smart strategy could save you thousands of dollars every year.
It's a path many buyers don't know exists, but it might be exactly what you need to make homeownership possible again.
Key Takeaways
✅ What is an assumable mortgage? An assumable mortgage lets a buyer take over the seller’s existing FHA, VA, or USDA loan, including the same interest rate, balance, and terms.
✅ How do FHA, VA, and USDA assumable loans differ? FHA loans allow assumption with credit and income checks, VA loans can be assumed by veterans or non-veterans with lender and VA approval (with seller entitlement risk if a non-veteran assumes), and USDA loans can be assumed if the buyer meets income limits (≤115% of area median) and primary residence requirements with lender and USDA approval.
✅ What are the main benefits of assumable mortgages? Buyers can secure below-market interest rates, reduce monthly payments, and often pay lower closing costs, while sellers can attract more buyers and potentially command higher sale prices.
✅ What are the biggest challenges with assuming a mortgage? The biggest hurdle is the equity gap; buyers may need to cover a large portion of the home's value with cash or secondary financing, and assumptions typically take 45–90 days to process, with some cases extending to 120+ days.
✅ What costs should buyers expect with assumptions? All assumptions require buyers to pay the seller’s equity. FHA loans may charge up to $1,800 (as of 2024), VA loans require a 0.5% funding fee plus a small processing fee, and USDA loans include a $300–$500+ assumption fee and standard closing costs, but no new upfront guarantee fee.
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What Is an Assumable Mortgage?
An assumable mortgage allows a buyer to take over the seller's existing mortgage under its current terms. This type of home loan transfers from the original borrower to the new homebuyer without creating a new mortgage.
The buyer assumes the remaining mortgage balance, interest rate, and payment schedule that the seller already established with the lender.
Three main types of government-backed loans offer this feature: FHA loans, VA loans, and USDA loans. Conventional mortgages are typically not assumable, except in rare situations. The assumable mortgage allows the buyer to step into the seller's shoes and continue making payments on the existing loan terms.
This arrangement can provide significant advantages, especially in a current market where interest rates have risen above the seller's original rate.
How Do Assumable Mortgages Work?
An assumable mortgage allows qualified buyers to take over the seller's existing mortgage instead of getting a new loan. The buyer becomes responsible for the mortgage payments at the original interest rate and terms.
This process requires lender approval and buyer qualification, similar to applying for a traditional mortgage. The buyer must meet the lender's credit requirements and demonstrate the ability to handle the monthly payments.
The assumption process typically takes 60 to 120 days to complete, though working with specialist assistance can reduce this timeframe to 30 to 60 days.
Buyers often face an equity gap due to home price appreciation since the original mortgage was taken out. The equity gap is the portion of the purchase price not covered by financing.
For example:,
Home price: $500,000
Remaining assumable mortgage balance: $300,000
Buyer must cover the equity gap: $200,000
This shortfall, which in some cases can equal 30 to 50 percent of the property value, can be met with cash or a second mortgage.
Processing times vary based on the lender and the complexity of the buyer's financial situation, making early preparation essential for success.
Types of Assumable Loans
While some conventional loans are technically assumable, they are very rare. The three main types you’ll encounter are FHA, VA, and USDA loans, which allow buyers to take over the seller’s existing mortgage terms and often secure interest rates far below today’s market.
FHA Loans
FHA loans stand out as one of the most accessible assumable mortgage options for qualified buyers. The Federal Housing Administration backs these loans, making them easier to assume than conventional mortgages.
FHA assumptions increased by 59% in 2023 compared to 2021, showing growing demand for this financing option. Buyers can take over the seller's existing mortgage terms, including the original interest rate, which often proves lower than current market rates.
Assuming an FHA loan requires meeting lender qualification standards, similar to applying for a new loan. The buyer must pass a credit review under FHA guidelines, which typically involve verifying income stability and acceptable debt-to-income ratios.
While FHA purchase loans generally allow borrowers with scores as low as 580 (or 500 with a higher down payment), for assumptions, the key requirement is that the buyer shows overall financial capacity to handle the loan.
The maximum allowable FHA assumption fee increased to $1,800 in 2024, up from $900 in the first increase since 2016. FHA loans may involve ongoing mortgage insurance premiums that continue throughout the loan term.
Qualified buyers can assume an FHA mortgage by working directly with the current lender to complete the assumption process.
VA Loans
VA loans stand out as one of the most powerful assumable mortgage options available today. These government-backed mortgages can be assumed by both veterans and non-veterans, though the Department of Veterans Affairs and the lender must approve the transfer.
VA loan assumptions surged by 713% in 2023 compared to 2021, highlighting the growing popularity of this option. Both veterans and non-veterans can assume a VA loan, but if a non-veteran takes over the mortgage, the original veteran’s entitlement remains tied up until the loan is paid off. If another veteran assumes and substitutes their entitlement, the seller’s entitlement is restored immediately.
Most VA loans require formal assumption approval from both the lender and the VA, except for loans closed before March 1, 1988, which are freely assumable. In February 2024, the VA issued Circular 26-24-5, updating rules on allowable assumption fees by region.
Buyers assuming a VA loan typically pay a funding fee equal to 0.5% of the remaining loan balance, unless exempt. Veterans with VA disability benefits and surviving spouses of veterans are not required to pay this fee.
USDA Loans
USDA loans can be assumed with lender and USDA approval. These government-backed mortgages help buyers purchase homes in rural and suburban areas. The home must serve as the buyer's primary residence.
Household income generally cannot exceed 115% of the area’s median income, and while many lenders prefer a credit score of at least 640 with a 41% debt-to-income ratio, USDA guidelines allow flexibility with compensating factors.
The loan assumption process for USDA loans takes about 45 to 60 days and involves lender approval and payment of equity to the seller. USDA loans may be assumed without lender approval only for successors in interest, such as through inheritance.
This type of mortgage offers rural homebuyers the chance to take over the seller's existing mortgage at potentially lower interest rates than current market conditions.
Benefits of Assumable Mortgages
Assumable mortgages allow buyers to take over the seller's existing mortgage and secure significant monthly savings. Buyers may benefit from lower rates if the seller's mortgage rate is below current market rates.
Reduced closing costs make the purchase process more affordable compared to obtaining a new mortgage loan.
Assumable mortgage could make home sales easier and more attractive in high interest rate environments. Sellers can command a higher sale price because buyers gain access to below-market rates.
Homebuyers see improved monthly budgets with assumed mortgages, paying $1,650 monthly at 3% versus $2,800 monthly for new 7% financing on a $400,000 home. No new appraisal is required for many assumable loans, which speeds up the closing process and reduces expenses for all parties involved.
Requirements to Qualify for an Assumable Mortgage
Buyers must meet lender's credit requirements to assume a mortgage, which are similar to new loan standards. FHA loans require a minimum credit score of 580 for 3.5% down payment, or 500 with 10% down payment.
VA loans offer no down payment required and provide eligibility for veterans, active-duty service members, National Guard members, Reservists, and surviving spouses. USDA loans demand a minimum credit score of 640 and a debt-to-income ratio of 41% or lower.
Buyers must gather employment, income, and asset documentation for assumption applications. All buyers must pay closing costs at closing and meet any specific lender or investor requirements.
The cost to assume a mortgage includes these closing expenses, which vary based on the loan type and lender policies. Mortgage assumption applications require thorough financial verification, just like applying for a new loan.
Lenders evaluate each buyer's ability to take over the seller's existing mortgage through comprehensive underwriting processes.
Costs Associated with Assumable Mortgages
Assuming a mortgage comes with several fees that buyers must plan for carefully. The FHA assumption fee jumped to $1,800 in 2024, doubling from the previous $900 cost. VA loans charge a funding fee of 0.5% of the remaining loan balance, though certain groups receive exemptions.
While assumable mortgages reduce some costs like loan origination fees, buyers must still pay most standard closing costs, including state transfer taxes, title insurance, and recording fees. In Florida, this includes documentary stamp taxes on both the deed transfer and mortgage assumption.
The biggest expense often comes from the equity gap between the purchase price and the existing mortgage balance. Sellers with substantial equity may require buyers to pay 30 to 50% of the home's value as a down payment.
FHA and USDA loans include ongoing mortgage insurance premiums that add to monthly costs. Some buyers take out a second mortgage to cover the equity difference, but these loans carry higher interest rates than primary mortgages.
Pros and Cons of Assumable Mortgages
Assumable mortgages offer significant benefits for both buyers and sellers in today's market. Buyers gain access to lower interest rates compared to current market conditions, which can save thousands of dollars over the loan term.
While some origination fees are avoided, buyers still face most standard closing costs, including state transfer taxes and title insurance. Sellers find it easier to sell their homes in high-rate environments, as the attractive financing terms draw more qualified buyers to homes with assumable mortgages.
Several drawbacks require careful consideration before pursuing this option. Processing typically takes 45 to 90 days, though some cases may extend to 120+ days depending on the lender and loan type.
Buyers face restrictions tied to the seller's existing mortgage terms and may struggle with approval challenges. The equity gap often forces buyers to secure secondary financing at higher interest rates.
Sellers remain liable for the mortgage even after the sale unless the lender provides an official release, creating ongoing financial risk if the transfer fails approval.
How to Assume a Mortgage Step-by-Step
Taking over a seller's existing mortgage requires careful planning and precise execution. Understanding the key steps involved helps make the process smooth and efficient.
Working With Bennett Capital Partners Mortgage Brokers
We specialize in government-backed mortgage programs, including FHA and VA loans that offer assumable options. Our experienced team provides expert guidance on assumption opportunities while focusing our origination services on securing new FHA, VA, and USDA mortgages that make homeownership achievable for our clients.
Our FHA, VA and USDA loan Expertise
With over 20 years of proven experience in Florida's mortgage brokerage industry, Bennett Capital Partners delivers specialized solutions that make homeownership accessible for diverse buyers. Our expertise spans three key government-backed programs: FHA loans that empower first-time buyers with low down payment options, VA loans that honor military families with zero down payment benefits, and USDA loans that unlock rural homeownership opportunities.
Under the leadership of President Philip Bennett (NMLS # 1098318), our team combines deep industry knowledge with personalized service that has distinguished us in Florida's competitive mortgage marketplace. We understand that each client's financial situation is unique, and we tailor our approach accordingly.
Our comprehensive services include educating clients about assumable mortgage opportunities within these government programs, while our primary focus remains on originating new FHA, VA, and USDA mortgages. This dual expertise allows us to guide clients toward the most advantageous financing solution for their specific homeownership goals.
Contact Us
Getting started with an assumable mortgage is straightforward with our team at Bennett Capital Partners. We specialize in FHA, VA, and USDA loan solutions throughout Florida and understand how these programs can benefit homebuyers.
Our experienced mortgage professionals provide guidance on assumable mortgage opportunities while excelling at securing new government-backed financing that fits your specific needs.
Reach out to us at 1-800-457-9057 or email info@bcpmortgage.com to discuss your specific needs and learn how you can take over the seller's existing mortgage.
Complete our contact form here with your first name, last name, email, phone number, and proposed property city and state to receive personalized assistance with your assumable mortgage needs.
FAQs
How can I get a lower mortgage payment when rates are this high?
One option is to assume the mortgage on a home with an assumable mortgage. By taking over the existing mortgage, you can keep the seller’s lower rate and reduce your monthly payment compared to current high-rate home financing.
Is there a way to take over a seller’s low interest rate?
Yes. An assumable mortgage is a type of loan that allows you to take over the existing mortgage and its terms, including the low interest rate. This is one of the main benefits of an assumable mortgage.
Can I avoid refinancing later by assuming someone else’s mortgage now?
If you assume the mortgage today, you lock in the original terms. That means you may not need to refinance later, even if rates stay high. This is a long-term way a mortgage can offer stability.
Do I need perfect credit to get an assumable mortgage?
No. While you need to qualify with the lender, mortgages aren’t only for borrowers with perfect credit. FHA, VA, and USDA loans can be assumed with reasonable credit and income checks.
If I don’t qualify for a traditional mortgage, can I still assume one?
Probably not. Lenders use the same qualification standards for assumable mortgages as they do for new loans. You’ll still need to meet credit score, income, and debt-to-income requirements.
Is it easier to get approved for an assumable mortgage than a new loan?
The approval requirements are the same, but the process can be more streamlined. You'll need to meet the same credit and income standards, but you may avoid some steps like a new appraisal and extensive property inspections. This can make the timeline shorter, but qualifying isn't necessarily easier.
How does the down payment work if I take over someone’s mortgage?
You pay the seller their equity as a down payment. For example, if the home sells for $400,000 and the loan balance is $300,000, you would need $100,000 at closing or secondary financing.
Do I still need 20% down on an assumable loan?
Not necessarily. The down payment depends on the seller’s equity, not a fixed 20%. Some deals may require more, others less, depending on how much of the mortgage balance is left.
Can I use an assumable mortgage if the seller has a lot of equity?
Yes, but be prepared. A home with an assumable mortgage and high equity means you’ll need more cash up front. This is often the biggest challenge for buyers.
How can I make my home more attractive to buyers without lowering the price?
Advertising that your mortgage is assumable is a powerful tool. Buyers see value in taking over a lower rate, which can make your property stand out without a price cut.
Why would a seller advertise that their mortgage is assumable?
Because it creates demand. Highlighting that your home with an assumable mortgage offers cheaper financing helps buyers justify paying your asking price.
Does having an assumable loan help a property sell faster?
Yes. Homes marketed with an assumable mortgage often move quicker because the benefits of an assumable mortgage make them more affordable compared to others in the same price range.
Are assumable mortgages good for investment properties?
They’re limited for pure investment purchases. FHA and USDA generally require the assuming borrower to live in the home as a primary residence, and VA assumptions typically include a primary-residence occupancy certification. If you plan to rent later, ask the lender about timelines and rules.
Can I use an assumable mortgage to increase my cash flow on rentals?
FHA, VA, and USDA loans all require the property to be your primary residence. These government-backed assumable mortgages cannot be used for investment properties or rental income purposes. Using them for rental properties would violate the loan terms and could result in the lender demanding immediate full repayment of the loan.
What are the long-term benefits of assuming a mortgage instead of getting new financing?
By assuming a mortgage, you keep the lower interest rate for the life of the loan. Over time, this saves thousands in interest and provides predictable, stable home financing.
Are conventional mortgages ever assumable, or is that only for FHA and VA loans?
Conventional mortgages aren’t usually assumable because most have a due-on-sale clause that requires the loan to be paid off when the home is sold. By contrast, FHA, VA, and USDA loans are designed to be assumable, allowing the buyer to take over the existing mortgage if approved by the lender.
How do I know if mortgages are assumable on the property I want to buy?
The best way is to check the type of loan on the home. If it’s an FHA, VA, or USDA loan, it may be assumable. You can ask the seller, review the loan documents, or contact the loan servicer directly to confirm if the mortgage is assumable before making an offer.
What is the average cost to assume a mortgage compared to getting a new one?
Assuming a mortgage reduces some costs but involves significant expenses. FHA assumptions charge up to $1,800, while VA assumptions include a 0.5% funding fee plus locality variance, often totaling $800-$1,000+. Most standard closing costs still apply, including state transfer taxes and title insurance.
The biggest expense is typically paying the seller's equity - you need cash or secondary financing to cover the difference between the home price and remaining loan balance, which can be substantial. While assumptions avoid origination fees, the primary benefit is securing a lower interest rate, not necessarily lower upfront costs.
Can assuming a mortgage loan really save me money compared to taking out a new home loan?
Yes. The main benefits of an assumable mortgage come from keeping the seller’s lower interest rate and avoiding many upfront costs. Over the life of the loan, assuming a mortgage can offer big savings compared to starting fresh with today’s higher-rate home financing.
Philip Bennett
(NMLS # 1098318)
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, LLC (NMLS # 2046862). He earned a Bachelor’s degree in accounting and finance from Binghamton University and a Master's in finance from Nova Southeastern University. With more than two decades of industry leadership, Philip has successfully guided thousands of clients through complex mortgage transactions.
Learn more about Philip Bennett’s background on our Founder’s page. Whether you’re a first-time homebuyer or a seasoned real estate investor, we are here to help you reach your goals. Don’t wait - contact us today and let us help you find the right mortgage for your needs.
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