Loan Assumptions in Real Estate: How to Take Over a Low-Rate Mortgage

You can take over a seller's FHA, VA, or USDA mortgage at its original rate if the loan servicer approves your credit and income; a USDA assumption also needs USDA Rural Development's approval. Most conventional fixed-rate loans cannot be assumed. If you will not live in the home, a VA loan is the only one of the three you can assume, because FHA loans closed on or after December 15, 1989 and all USDA loans require the new borrower to occupy the property. You pay the difference between the loan balance and the price in cash or with a second loan.

For the other loan options a rental buyer has, see tips for getting approved for an investment property mortgage.

Which mortgages can be assumed, and by whom

The servicer (the company that collects the payments) reviews the application, using the same credit and income standards as a new loan of that type. The FHA and VA loans keep their rate and remaining term. USDA can set new terms on an assumption, but not a higher rate than the original loan.

A few conventional adjustable-rate loans held by Fannie Mae can be assumed by a creditworthy buyer, with exceptions for certain loan plans and for loans converted to a fixed rate. Ask the servicer before you count on one.

If you will live in one unit and rent the others, you can assume an FHA loan on a 2 to 4 unit building, as with an FHA purchase. See FHA loans for owner-occupied multi-family properties. Buying a home and leaving the seller's loan in place without approval is a different deal with different risks, covered in subject-to financing. HUD lets an FHA servicer ask to call the full loan due when someone takes over the loan without credit approval.

How servicer approval works and how long it takes

1. Get the loan facts first. Ask the seller for a recent mortgage statement showing the servicer, loan type, rate, balance, and payment. Ask the servicer whether the seller received a partial claim (a second lien for missed payments). FHA requires a partial claim to be repaid when the seller no longer owns the home, and VA requires its COVID-era partial claim to be repaid in full at transfer. The payoff comes out of the seller's proceeds or extra cash at closing, so confirm the price covers it. A VA loan must also be current, or brought current with cash, by closing.
2. Write the contract around the approval. Make the sale contingent on assumption approval and allow enough time for it.
3. Apply with full documentation. Expect the paperwork of a purchase loan. FHA requires a human underwriter to review an assumption; its automated scorecard may not be used. VA has the servicer apply its standard purchase underwriting.
4. Wait for the decision. A VA servicer with automatic authority must decide within 45 calendar days of receiving a complete application. A servicer without that authority must send the package to VA within 35 days. If you are denied, you or the seller can appeal to VA within 30 days. HUD's FHA handbook sets no deadline, so ask the servicer for its timeline in writing.
5. Close. You sign an assumption agreement and pay the allowed fees. FHA servicers must refund half the processing fee if your credit is approved but the assumption fails for reasons outside your control. On a VA loan, the 0.5% funding fee must be paid in cash at closing and cannot be added to the balance, unless you qualify for a VA funding fee exemption.

How to pay the gap between the loan balance and the price

On a $400,000 home with a $275,000 loan balance, you need $125,000 plus closing costs. The usual sources:

• Cash. FHA does not require a minimum cash investment on an assumption, but the seller still has to be paid the difference.
• A second mortgage. VA allows a second lien on an assumption if it sits behind the VA loan, its payment is counted in your debts, and the money goes only to closing costs or amounts owed to the seller, with no cash back to you. Its rate can be higher than the VA loan's. If the second loan cannot be assumed, your own future buyer may not be able to take over the VA loan easily.
• Seller financing. The seller can carry part of the gap as a note secured by a second lien. On a VA loan, that note follows the same second-lien rules. See seller financing.
• A USDA supplemental loan. USDA may guarantee an added loan to complete an assumption or make repairs if the property's value supports it.

The seller's VA entitlement

Entitlement is the amount VA guarantees on a veteran's loan. When a buyer assumes a VA loan without substituting entitlement, the seller's entitlement stays tied to that loan until it is paid in full. If the buyer later defaults and VA pays the lender a claim, the seller must repay that loss before getting the entitlement back. VA expects the servicer to give the veteran seller VA Form 26-10291, which explains this, and to have it signed by closing.

A substitution frees the seller's entitlement. The buyer must be an eligible veteran with at least as much available entitlement as the loan uses and must intend to live in the home. An investor who will rent the property cannot substitute. Because the seller gives up the use of that entitlement, ask early whether the seller will accept an assumption without substitution. How remaining entitlement limits the seller's next VA purchase is covered in using VA loans for real estate investment.

Worked example: blended rate versus a new loan

The seller took out a $310,000, 30-year VA loan at 3.0% in 2021. The payment is $1,307 a month for principal and interest, and after about 5 years the balance is $275,000. The price is $400,000. You put $45,000 down and borrow $80,000 on a 20-year second mortgage at an assumed 9.0%. For the new-loan comparison we use 7.32%, Freddie Mac's average 30-year fixed rate on October 22, 2026. That survey covers owner-occupied loans, so a rental loan will usually be quoted higher.

The assumption saves $412 a month, and the main loan pays off 5 years sooner. Add the one-time costs: the VA funding fee of 0.5% x $275,000 = $1,375 in cash, the processing fee, and the second lender's closing costs.

The advantage shrinks as the gap grows. If the seller owed $175,000 and you borrowed $180,000 at 9.0%, the blended rate would be ($175,000 x 3.0% + $180,000 x 9.0%) / $355,000 = 6.04%, and higher second-loan fees could erase the rest. Run both numbers with written quotes before you offer.