Are FHA Loans Assumable?

FHA loans are assumable, meaning a new homebuyer can take over the existing FHA loan from the current homeowner. In doing so, the buyer agrees to take over the loan, including all the original terms and mortgage rate. With some of the highest mortgage rates in over 10 years, taking on a new mortgage may seem out of reach. Assuming an FHA loan might allow you to secure a mortgage with a lower interest rate or lower monthly payments.

What is an FHA assumable loan?

An FHA assumable loan is a Federal Housing Administration (FHA) mortgage that allows a buyer to take over a seller’s existing loan with their lender’s approval. By assuming an FHA loan, the buyer agrees to take over the existing loan terms, including the remaining loan balance, interest rate, and repayment terms. When assuming an FHA loan, you’ll also need to meet the lender’s loan qualifications, which makes a FHA loan assumption different from a VA or USDA loan assumption.

Are all FHA loans assumable?

All FHA loans are assumable. However, the FHA does place certain restrictions on loan assumptions based on when the loan was originated. FHA loans originating on or after December 15, 1989 are not freely assumable. Buyers must meet the lender’s credit qualifications and debt-to-income ratio (DTI) threshold and have proof of income.  

Can you assume an FHA loan?

Yes, you can assume an FHA loan. Lenders typically don’t require a home appraisal or mortgage application when assuming an FHA loan like they do when obtaining a new FHA loan.  When assuming an FHA loan originated on or after December 15, 1989, buyers must meet the FHA lending criteria to receive assumption approval. 

FHA assumable loan requirements

• You must have a minimum credit score of 580
• You must have a DTI of 43% or less
• You must provide proof of income to demonstrate your ability to make the ongoing mortgage payments
• You must intend to use the property as your primary residence
• The seller must have owned the home for at least one year
• The existing mortgage loan must be in good standing, meaning there are no outstanding payments on the seller’s end
• The property must meet current FHA standards regarding safety, security, and structural soundness
• As a down payment, you may be required to pay the seller compensation equity, which is the monetary difference between the home’s current market value and the loan’s remaining principal balance

You may be denied an FHA loan assumption if:

• You have had a Chapter 7 bankruptcy filing within the past two years
• You have had a foreclosure within the past three years
• You do not meet the lender’s credit, debt, or income qualifications
• The seller has defaulted on their mortgage payments
• The property does not meet the FHA property standard requirements

How to assume an FHA loan

Contact the lender

Once you find a home with an FHA assumable mortgage, you must contact the lender to verify the loan's origination date and learn their specific criteria for assumption qualification. The lender will also provide you with a loan assumption application to fill out for the underwriting process.   

Provide the required documentation

To verify your creditworthiness and lending risk, the lender will ask for the following documentation:

• A copy of your driver’s license
• A copy of your social security card or Tax Identification Number (TIN)
• Proof of income, including recent pay stubs, banking statements, and W2 tax returns from the past two years
• Employment verification, such as a letter from your employer
• Proof of assets, such as documentation of your savings account and any investment accounts

Pay the closing costs

To assume an FHA loan, you must also pay the lender an assumption fee and closing costs. Assumption fees range from 0.05% to 1% of the original loan amount, whereas closing costs range from 2% to 5% of the remaining loan balance. These fees are typically paid upfront at the time of closing.

You will also have to pay the compensation equity upfront. If the cost of the seller’s compensation equity exceeds your home-buying budget, you may need to apply for a second mortgage loan.

Sign the release of liability and close on the home

Once the mortgage assumption application is approved, the last step is to sign the closing paperwork, which typically includes the mortgage note and closing disclosure. With an assumable loan, you’ll also have to sign a release of liability form, which officially releases the seller from their mortgage responsibility.

An FHA assumable loan may be just what you need to bring you closer to your homeownership goals. Browse our home sale listings or connect with one of our experienced Zillow Premier Agent partners to find an FHA assumable mortgage.