Confirm the loan is assumable
Ask the servicer for the assumption department contact and their required checklist. Do not rely on agent folklore.
FHA and VA Loan Assumptions: How They Work
Assumable mortgages can feel like a cheat code when rates are high. The reality is more procedural: assumptions are lender-run transfers with underwriting, fees, paperwork, and timelines. This guide explains how FHA and VA assumptions work, what the buyer and seller must do, and the traps that blow up closings.
Official reference points worth bookmarking: HUD on FHA assumability , HUD FHA INFO 2024-30 update , VA Circular 26-23-10 , VA Form 26-8106.
An assumption transfers the existing loan terms to a new borrower. It can save real money if the existing rate is far below today’s rate, but you still need lender approval and you usually must cover the seller’s equity gap.
What “Assuming a Loan” Actually Means
When you assume a mortgage, you take over the remaining balance, interest rate, and amortization schedule of the seller’s loan. You are not creating a new mortgage. The servicer or lender processes the assumption and decides if you qualify. If approved properly, the buyer becomes responsible for payments and the seller can be released from liability.
Key idea: the loan balance stays the same. If the home price is higher than the remaining loan balance, the buyer must fund the difference. That “equity gap” is the #1 reason assumptions fail in practice.
FHA vs VA Assumptions at a Glance
| Topic | FHA Assumption | VA Assumption |
|---|---|---|
| Is it assumable? | FHA forward mortgages are generally assumable with lender processing. | VA loans can be assumable, subject to lender approval and VA rules. |
| Does the buyer need to qualify? | Most arms-length assumptions require credit qualification (especially modern FHA loans). | Typically yes. Lender underwrites the assumer for ability to repay. |
| Processing fee | HUD has updated allowable assumption processing fees in Handbook updates. | Servicer charges vary, plus the VA assumption funding fee often applies. |
| Special VA concept | Not applicable. | Substitution of entitlement can protect the seller’s VA entitlement for future use. |
| Big closing friction | Equity gap, document delays, and servicer timelines. | Equity gap plus entitlement and release of liability mechanics. |
Note: rules vary by loan date, scenario (arms-length sale vs successor in interest), and servicer procedures. Always verify directly with the servicer and the program guidance.
FHA Loan Assumptions
FHA-insured loans can be assumed, but assumptions are not informal. The lender or servicer runs the process, collects documents, and can require the buyer to qualify. HUD’s public guidance is a good starting point: Are FHA-insured mortgages assumable?
What FHA buyers usually need
- Credit and income documentation requested by the servicer
- Proof of funds for the equity gap and closing costs
- Updated insurance and any property-related items the servicer requires
- Patience for process timelines that can run longer than a standard purchase loan
FHA assumption fees and limits
FHA periodically updates what mortgagees may charge for processing an assumption. A helpful public reference is the HUD Single Family Housing FHA INFO message update: FHA INFO 2024-30. Expect additional third-party costs depending on the file.
VA Loan Assumptions
VA assumptions are powerful when the existing rate is low, but they add one extra layer of complexity: VA entitlement. VA guidance also describes an assumption funding fee that often applies, and the steps servicers should follow: VA Circular 26-23-10.
Release of liability and entitlement
Sellers care about two things: being released from liability and protecting future VA borrowing capacity. In many scenarios, if a non-veteran assumes a VA loan, the seller’s entitlement can stay tied up until the loan is paid off. A veteran buyer may be able to substitute entitlement, which is why VA assumption paperwork matters. VA’s form page is a useful reference point: VA Form 26-8106 (Substitution of Entitlement).
What VA buyers should plan for
- Servicer underwriting and approval, similar to other assumption processes
- Potential VA assumption funding fee, unless exempt under VA rules
- Extra time for entitlement and release-of-liability mechanics
- Equity gap funding plan, often the real deal-breaker
The Equity Gap Problem
Example: the home sells for $500,000 and the assumable loan balance is $320,000. The buyer must bring $180,000 plus closing costs. Many buyers assume they can “just assume the loan” and finance the rest easily. In reality, second liens and bridge options are underwritten tightly, and the combined monthly burden can erase the assumption benefit.
How buyers cover the gap
- Cash from savings or sale proceeds
- Second mortgage, where available and underwritten
- Gift funds, if permitted and documented
- Seller concessions in limited cases, subject to rules and contract terms
Step-by-Step: How to Get an Assumption Closed
Request the assumption packet
Get the official forms, required income documents, and the servicer’s timeline expectations in writing.
Build the equity gap plan
Know exactly how you will fund the price minus the loan balance. No plan means no close.
Submit and push for completeness
Assumptions get stuck when documents are missing or unclear. Treat it like a diligence sprint, not a casual upload.
Protect the seller
Ensure release of liability is processed where applicable. For VA loans, address entitlement and substitution early.
Special Cases: Divorce, Death, and Successors in Interest
Assumptions also show up when ownership changes due to divorce or a death in the family. Servicers have guidance on handling these situations and borrowers often face servicing friction. For background, the CFPB has published research on these problems: CFPB report on servicing issues after divorce or death.
If you are in a successor scenario, ask the servicer what documentation is required and whether the process is a transfer, an assumption, or both. Those are not the same thing.
Need Help Packaging an Assumption Timeline?
If you are coordinating financing, a second lien plan, or a time-boxed closing workflow, we can help you structure the dossier and keep the process moving. Start here: request a quote.
This article is educational and not legal, tax, or mortgage advice. Always confirm program rules and your specific assumption requirements with your servicer and relevant agencies.
Financely acts as advisor and arranger. We are not a lender or servicer. Assumption approvals, fees, timelines, and documentation requirements are set by the servicer and applicable program rules. Nothing here is a guarantee of approval or closing.