Assumable Mortgages: Take On Someone Else’s FHA, VA, or USDA Home Loan

Gina Pogol
The Mortgage Reports contributor

“Assume” A Mortgage To Save Money

Buying a home? Unless you’re paying cash, you’ll need a mortgage for that property and mortgage costs can be among the highest of your settlement statement fees come closing.

Whether you’re financing your first home or your 50th, though, you have a way to reduce your loan costs to almost nil.

Rather than getting a new mortgage loan to finance your next home, why not get an old one?

So long as the seller financed its home using a FHA-, VA-, or USDA-backed mortgage, as the buyer, you can  “assume” the home’s mortgage and its monthly payments due to the bank.

If the seller’s current mortgage rate is three percent, 3% can be your rate, too.

Verify your new rate (Mar 4th, 2021)

How Do Mortgage Assumptions Work?

When you buy a home and assume its mortgage from the seller, the home is transferred to your name and the mortgage is, as well.

Literally, you assume the mortgage, its terms, and its obligations.

Only certain loan types are considered assumable. Conventional loans, for example, are not. This includes all loans backed Fannie Mae and Freddie Mac, including the 3%-down HomeReady™ mortgage; and the HARP 2 refinance.

Only FHA loans, VA loans, and USDA loans can be assumed.

As one who assumes a loan, you become known as the assumptor. The seller is known as the assumptee. Once the home sale is complete, the assumptee is freed of its obligation to the home and its loan and the assumption becomes legally obligated to meet the home loan’s terms.

Verify your new rate (Mar 4th, 2021)

Why Should You Assume A Mortgage?

When you purchase a home, you can get a new mortgage loan, or attempt to assume the loan the seller’s already go.

There are a number of reasons why you would want to assume a loan, if you’re able.

The biggest reason to assume a loan is because the mortgage rate of the existing loan is lower than for what you might qualify in today’s mortgage market.

For example, if the seller purchased its home in early-2013 and used fixed-rate financing, it’s likely that the attached mortgage rate hovers near three percent. This may be a better deal than what you can get today.

For every 100 basis point (1.00%) reduction against today’s current rates,  you’ll save close to $60 per $100,000 borrowed when you assume a seller’s mortgage.

Furthermore, your mortgage closing costs will be less.

With VA mortgages, buyers taking the assumed-mortgage path pay fewer funding fees and can often skip their home appraisal. Buyers using FHA loans avoid upfront MIP.

Savings like this can be substantial.

Verify your new rate (Mar 4th, 2021)

Qualifying For A Mortgage Assumption

Before a loan can be assumed, the following conditions must be met:

  • The loan must be current. Delinquent mortgages may not be assumed.
  • The assumption must be pre-approved by the issuing agency (e.g.; FHA, VA, USDA)
  • The buyer must agree to assume the entire mortgage obligation

Furthermore, the buyer must be able to be approved for the mortgage type which is being assumed.

For example, if the mortgage to be assumed is FHA-backed, the buyer must qualify for an FHA loan under today’s mortgage guidelines. This includes meeting minimum standards for credit scores, employment history, and money in the bank.

It also includes hitting minimum debt-to-income ratios, which, in theory, should be easier to meet with an assumable loan. You wouldn’t typically assume a loan for which the mortgage rate is higher than current mortgage rates.

What Are Today’s Mortgage Rates?

When you’re buying a home, it pays to ask whether the seller’s current mortgage is either an FHA loan, a VA loan, or a USDA loan. These are loans that can be assumed.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Mar 4th, 2021)