If the loan originated before 1988, you will not need permission from the VA or the lender to assume the mortgage. That said, if the loan originated after 1988, any loan assumption must be lender-approved. While there isn't a minimum credit score, the lender will typically look for a score of 620 and above.
Newer FHA loans require both buyer and seller to meet specific criteria for an assumable mortgage. Sellers must live in the home as a primary residence for a set amount of time, and buyers must follow the standard FHA loan application process. FHA mortgages are more accessible for buyers with a lower credit score.
At the end of 2023, more than half of U.S. homeowners had rates under 4% and sites with listings for homes with assumable mortgages currently boast rates as low as 2%. Assuming one of these loans, rather than taking out a brand-new mortgage, could save you tens of thousands of dollars over the life of that loan.
To assume a loan, you must qualify with the lender. If the price of the house exceeds the remaining mortgage, you must remit a down payment worth the difference between the sale price and the mortgage.
You'll have to pay closing costs on a loan assumption, which are typically 2-5% of the loan amount. But some of those may be capped. And you're unlikely to need a new appraisal. So you may pay less on closing than a 'typical' home purchase — but only a bit less.
You'll be asked to provide extensive documentation, much like you would when securing financing the traditional way. That's why it's important to have copies of pay stubs and W-2's ready ahead of time. Keep in mind that the average loan assumption takes anywhere from 45-90 days to complete.
Answer: A qualified assumption requires the assuming borrower to qualify for credit based on current underwriting guidelines. Credit score, debt-to-income ratios and other factors may be used to determine qualification, but vary based on loan type.
"In the current mortgage interest environment ... it is nearly always better to assume the mortgage rather than refinance," says Julia Rueschemeyer, a Massachusetts-based attorney specializing in divorce mediation. "Refinancing involves thousands of dollars in transaction fees and higher interest rates."
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.
In a simple assumption, the seller remains liable for the outstanding mortgage debt. If the buyer defaults on payments, both parties' credit scores are affected. This shared risk can strain the relationship between buyer and seller and lead to financial repercussions for both.
4-1 GENERAL. All FHA insured mortgages are assumable.
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.
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.
While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage: FICO® Score 2 (Experian) FICO® Score 5 (Equifax) FICO® Score 4 (TransUnion)
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.
Cons On An Assumable Mortgage
If you don't have that much cash, you'll have to take a second mortgage at current rate to cover the shortfall. You'll have to assume mortgage insurance payments: Most FHA and all USDA loans will include a monthly mortgage insurance payment in addition to the mortgage payment itself.
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.
In theory, mortgage loan assumption is the simplest solution of all. That's because it doesn't require refinancing your mortgage. You inform your lender that you are taking over the mortgage and want a loan assumption.
What Credit Score Do You Need for an Assumable Mortgage? You'll need to qualify for the mortgage that you're assuming, which means you may need a credit score of at least 500 for an FHA loan or 620 for a VA loan.
The assumed credit limit is simply a common figure used to easily show the representative example in a common format. This 1200 credit limit is an arbitrary figure chosen to allow customers to compare different credit cards. This assumed credit limit is not the actual credit card limit that a customer is likely to get.
Federal Housing Authority (FHA) loans: According to the FHA, loans are assumable when both transacting parties meet certain criteria. For starters, the home must be used as the primary residence. The loan servicer must also check the buyer's credit to ensure they meet the loan requirements.
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.
Any method of paying for someone else's mortgage would qualify as a gift. In the United States, if you give someone a certain amount of money without receiving a service in return, you become liable for the gift tax.
Typically, removing a name from a mortgage could require you to pay off the loan in full or refinance it with a new loan. But, there are alternatives where you can take over the loan without paying off it off or refinancing. These could include mortgage assumption, loan modification and bankruptcy.