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    Understanding FHA Assumable Mortgages

    Buyers are increasingly compelled to look for creative solutions to make purchasing a house more affordable in the current real estate market.

    One way to reduce costs is to acquire an already existing loan. That means you can purchase a property and take over the seller’s original mortgage through a process called loan assumption. It is especially advantageous during periods with high interest rates such as today.

    There are only certain types of assumable loans, however. This article uncovers many questions that you may have about whether or not an FHA mortgage is assumable.


    Are FHA Mortgages Assumable?

    Yes, all government-backed types of mortgages are assumable– including FHA or Federal Housing Administration loans along with VA loans and USDA loans. FHA loans are designed to make homeownership more accessible by offering features like lower down payments, more flexible credit requirements, and higher debt-to-income ratios (DTI). 

    In contrast, conventional loans are typically not assumable because of something called the due-on-sale clause. This makes existing FHA mortgages especially appealing to prospective buyers who want to turn back the low interest rate clock and assume an existing loan. 

    Learn more about FHA loans


    How Does an Assumable Mortgage Work?

    Assuming a mortgage has more intricacies than originating a new mortgage. You take over the existing mortgage including the interest rate, monthly payments, loan balance, and life of the loan. 

    To successfully assume a mortgage, you need to buy out the seller’s home equity. This comes in the form of a down payment so that you will have the same remaining loan balance as the previous owner. 

    Calculating Your Down Payment

    Every seller’s situation is different–some may have significant equity, while others have less. Some may have higher mortgage rates than others as well depending on when the loan was originated. 

    Despite these differences, the process for calculating your down payment to assume a mortgage is the same. The equation consists of three components and looks like this:

    List price – Remaining loan balance = Down payment

    Let’s take a look at what each of these terms means and how they relate to one another.

    • List price (or purchase price). This is what the seller is asking the buyer to pay for the house.
    • Remaining mortgage balance. What the seller still owes on the loan and the amount that you will assume when taking over the mortgage. You will be responsible for paying back the loan over the repayment period.
    • Down payment. The difference between list price and the remaining loan amount is the seller’s equity in the property. In effect, this is what you need to pay as your down payment to assume the mortgage.

    The down payment is an upfront cost, but it doesn’t always have to be all cash. In some cases, buyers take a second mortgage to cover the difference. When you’re borrowing money from second lien lenders (the bank for the second mortgage), they often say you can only borrow up to 80% of how much your property is worth. 

    Here’s everything you need to know about assumable mortgages

    Roam’s Eligibility Criteria for an FHA Mortgage 

    While all FHA loans are assumable, not all loans make sense to assume from a financial perspective. For example, taking over a mortgage with a higher interest rate than you could get by obtaining a new mortgage. Another time when it might not make sense is if the seller has significant equity, because that would require a very high down payment.

    Roam has several key criteria for evaluating existing FHA mortgages that simplify the decision making process for buyers and sellers.

    • Interest Rate. At this time, we look for FHA mortgages with 5.5% or less interest rates.
    • Loan-to-Value (LTV) Threshold. A measurement used by banks to see how much the house is worth compared to an owner’s equity. For the purposes of assuming a mortgage, you just need to know that lower the LTV (expressed as a percentage), the more money you will need for a down payment.

    In many instances, both of these factors will be considered together. This ensures that it makes financial sense to consider certain assumable mortgages.

    How Roam Works for Assumable Mortgages


    What are the Requirements to Assume an FHA Mortgage?

    Requirements are relatively lax to assume an FHA mortgage. Oftentimes, if you qualify for an FHA loan then you can assume an FHA mortgage. With that said, the homeowner’s current mortgage servicer will issue you the official approval. This may include credit score, income requirements, and other considerations. 

    In addition, there are some other important things to know about assuming an FHA mortgage:

    • Assumable mortgage limitations. Mortgages initiated prior to December 1, 1984, typically do not impose any limitations on their assumability. However, for mortgages initiated after December 1, 1986, there may be a requirement to conduct a creditworthiness assessment for the individual assuming the mortgage.
    • Overqualification. A common misconception is that some people are “too qualified” for an FHA loan or have too strong of a financial profile to be eligible for an FHA loan. However, it’s important to realize that FHA loans are designed to help a wide range of homebuyers, including those who may have less-than-perfect credit or limited financial resources. Even if you have a good credit score, a stable income, or a substantial down payment, you can still consider an FHA loan.
    • One FHA loan at a time. Some people believe that these are only for first-time homebuyers. While you’re not limited to one FHA mortgage in your lifetime, you can only have one active FHA loan at a time. 

    What Should Buyers Know About Assuming an FHA Mortgage?

    Before you make your decision to purchase a home using an assumable mortgage, you need to understand both sides of the argument. Here are some of the pros and cons of assuming an FHA mortgage.


    • Lower rates. Assuming an FHA loan can be advantageous if interest rates have increased since the original loan was issued. Some existing FHA loans have interest rates under 3%, which is significant compared to current rates.
    • Lower monthly mortgage payments. A lower interest rate also comes with lower monthly payments–you could cut your potential mortgage payment in half with an assumable mortgage. This means that you have more disposable income for other needs and wants.
    • Lower closing costs. Buyers taking on an FHA assumable mortgage can save significantly on closing costs compared to obtaining a new mortgage, although some fees like the mortgage lender’s assumption fee may still apply.
    • Potentially an Optional Appraisal. When assuming an FHA mortgage, the original lender typically does not require a new appraisal, saving money on the appraisal fee.


    • Lender requirements. Buyers assuming an FHA mortgage must meet all the lender’s requirements as if it were a new loan. You still need to go through the underwriting process, it also means using the same lender the seller originally used.
    • Higher down payments. Buyers need to take over the seller’s mortgage by buying out the existing equity in the property. If the seller has substantial equity in the home, then you will need to come to closing with more cash or take out a second mortgage.
    • PMI (private mortgage insurance) for the life of the loan. In most instances regarding FHA mortgages, PMI will remain for the life of the loan. There are some exceptions, so be sure to ask your lender to understand your options.

    What Should Sellers Know About FHA Mortgage Assumptions?

    When the time comes to sell your home, your mortgage may be a valuable asset. In the current interest rate environment, potential buyers would love to have lower interest rates.

    If your loan terms are strong and you have limited equity, your home may be more attractive to potential buyers compared to other similar homes in your area in the current market conditions. At Roam, we help you leverage this by giving you marketing materials that advertise important loan and equity features.

    Knowing that you have a hot commodity also gives you more negotiating power. With an attractive existing mortgage, you may be able to negotiate a higher price or other favorable terms.

    On the other hand, allowing someone to assume your mortgage does require some precaution. As the original borrower, sellers must ensure that the lender releases them from liability for the mortgage. If not, you could still be responsible for payments if the assuming borrower defaults on the loan, potentially damaging their credit rating. Roam makes sure that this is done correctly.


    How to Find an Assumable FHA Mortgage Loan

    There are millions of FHA mortgages available across the country. Finding a seller with an assumable mortgage on the other hand is much like finding a needle in a haystack. It is rarely advertised in listings and may take hours of research to find existing FHA home loans.

    To skip the investigative work, use Roam.

    Roam has revolutionized the way prospective homeowners discover FHA mortgages.  We’ve compiled a database of assumable mortgages that also have favorable financing terms. 

    Getting started is simple. Sign up and answer questions about your situation. You’ll then have access to a curated selection of houses that meet your criteria. From your home search to facilitating the loan assumption process, Roam is here to help.

    Find assumable mortgages in your area



    Kyle Spearin

    Kyle Spearin

    Kyle fell in love with real estate when he bought his first home. As a content marketing professional in the real estate space, he is committed to educating people about the home buying process and an advocate of making home ownership more affordable. His experience with real estate tech companies, including BiggerPockets, gives him insight into real estate market trends across the United States.