Buyer can't assume a conventional mortgage, in most cases: The only types of assumable mortgages are FHA loans, VA loans and USDA loans.
Most government-backed loans, including all FHA loans, are assumable, as long as the lender approves the sale. However, additional rules apply: For loans originated on or after Dec. 15, 1989: If the buyer is creditworthy, the lender must approve a sale by assumption and transfer responsibility to the buyer.
VA, FHA, and USDA mortgages are assumable, and anyone can assume these loans. For VA assumptions, the buyer is not required to have VA eligibility.
The mortgage balance, interest rate, and repayment schedule all carry over to the buyer. However, only Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and U.S. Department of Veterans Affairs (VA) loans can qualify. Conventional mortgages cannot be assumed.
As mentioned, lenders must approve an assumable mortgage. If done without approval, sellers run the risk of having to pay the full remaining balance upfront. Sellers also risk buyers missing payments, which can negatively impact the credit score of both the buyer and seller.
Eligibility check: First, verify if your mortgage is assumable by checking your loan agreement or consulting your lender. Finding a qualified buyer: The new borrower must meet the lender's credit and income requirements, just as they would for a new mortgage. They'll also need the ability to pay your equity stake.
FHA-insured loans originated before December 1, 1986, generally contain no restrictions on assumability. Due to the HUD Reform Act of 1989 FHA mortgages executed between 1986 and 1989 are freely assumable, despite any restrictions stated in the mortgage.
Not assumable means that the buyer cannot assume the existing mortgage from the seller. Conventional mortgages are non-assumable. Some mortgages have non-assumable clauses, preventing buyers from assuming mortgages from the seller.
The states with the highest share of assumable mortgages are Alaska (39.3%), Wyoming (34.4%), Virginia (34.1%), Nevada (32.8%), Oklahoma (32.5%), Maryland (32.1%), Georgia (31.5%), Louisiana (31.5%), New Mexico (31.4%), and Delaware (30.8%).
In 2023, 3,825 FHA loans were assumed, compared with 2,221 in 2022. In just the first five months of 2024, an additional 3,477 FHA assumable loans were recorded, putting borrowers on track to more than double last year's total. VA loan assumptions recorded an even steeper spike, from 308 in 2022 to 2,244 in 2023.
FHA Loan Assumption Requirements
Buyers wishing to assume an FHA mortgage must have a minimum credit score of 620, although buyers with scores above 580 may be eligible with additional restrictions.
You'll typically only be able to transfer your mortgage if your mortgage is assumable, and most conventional loans aren't. Some exceptions, such as the death of a borrower, may allow for the assumption of a conventional loan.
Not all mortgages are assumable, but you can tell if you have one by the language in your note and mortgage. You can also find out by speaking to one of our assumption specialists at 1-800-340-0570. If you have an existing assumable mortgage, you may be able to add or remove borrower(s) through an assumption loan.
An estimated 12.2 million loans, or 23 percent of active mortgages, are assumable, according to Intercontinental Exchange, a data and technology firm, though most conventional mortgages (which account for the majority of existing loans) are not.
The Garn St. -Germain Act of 1982 allowed private lenders to enforce a due-on-sale clause, requiring payment in full if a property changes hands, making assumable mortgages near obsolete outside of divorce and property inheritance.
Only government-backed mortgages, from the Federal Housing Administration, U.S. Department of Veterans Affairs or U.S. Department of Agriculture, are assumable. Conventional mortgages typically have to be paid off when the house is sold.
Fannie Mae purchases or securitizes conventional, fully amortizing, fixed-rate first mortgage loans. Conventional fixed-rate loans are not assumable as of the note date. When selling such loans to Fannie Mae, the Assumption Indicator in the Loan Delivery application must be "False" (which means not assumable).
Advantages of Assumable Mortgages
There are also fewer closing costs associated with assuming a mortgage. This can save money for the seller as well as the buyer. If the buyer is gaining a lower interest rate, the seller may find it easier to negotiate a price closer to the fair market asking price.
You Pay the Seller Instead of Making a Down Payment
When you assume a loan, you do not have to make a down payment. Instead, you pay the seller compensation for the equity they have built in the home, or the difference between their mortgage balance and what the home is worth.
4-1 GENERAL. All FHA insured mortgages are assumable.
The short answer is: it depends. Conventional loans are sometimes assumable, meaning that a buyer has the ability to take over the remainder of an existing loan from another borrower. However, whether or not the loan is assumable requires specific requirements to be met.
Only government-backed mortgages — loans backed by the Federal Housing Administration, U.S. Department of Agriculture and U.S. Department of Veterans Affairs — can qualify as assumable mortgages.
Needs to be a government backed loan to be assumable. FHA, USDA, or VA are all assumable by default. Conventional mortgages are generally not assumable, but if you want to read your mortgage contract maybe yours is, but not likely.
What is the mortgagee clause? The mortgagee clause shows that your mortgage lender is protected under the policy which is required by your mortgage agreement. If the mortgagee clause on your insurance policy is not correct, please contact your insurance agent to make the correction and issue a change to us.