Assumable Loans

What Is an Assumable Loan?

An assumable loan is a type of mortgage that allows a buyer to take over the seller’s existing home loan, including its interest rate, balance, and terms.

This can be a major advantage for buyers—especially when the seller’s mortgage rate is lower than current market rates. By assuming an existing loan, buyers can potentially save thousands in interest and enjoy a smoother, faster closing process.

Assumable loans can be a smart and cost-effective path to homeownership in the right circumstances.

What Types of Loans Are Assumable?

Most conventional loans are not assumable. However, several government-backed loans do allow assumptions, including:

• FHA loans (Federal Housing Administration)

• VA loans (Department of Veterans Affairs)

• USDA loans (U.S. Department of Agriculture)

To assume a loan, the buyer must be approved by the lender. At closing, the buyer typically compensates the seller for the equity they’ve already built in the home.

FHA Loans

FHA loans can be assumable, but both buyer and seller must meet certain conditions.

• The home must be the seller’s primary residence.

• The buyer must apply and qualify just as they would for a new FHA loan.

• The seller’s lender reviews the buyer’s credit and financial stability.

Once approved, the buyer takes over the mortgage with the same terms and interest rate. However, it’s important to note that the seller remains liable for the loan until they receive an official release of liability from the lender.

VA Loans

VA loans are available to eligible veterans, active-duty service members, and their spouses—but they can also be assumed by non-military buyers, with approval.

Key points to know:

• Both the lender and the regional VA loan office must approve the assumption.

• The buyer must meet credit and income standards.

• If the loan originated before March 1, 1988, the process is much easier—no VA or lender approval is required.

USDA Loans

USDA loans are designed for rural homebuyers and often feature no down payment and low interest rates.

To assume a USDA loan:

• The buyer must meet standard credit and income requirements.

• The USDA must approve the title transfer.

• The loan can be assumed with the same terms and rate, or restructured with new ones (depending on approval).

However, a USDA loan cannot be assumed if the seller is behind on payments, even if all other requirements are met.