What is an FHA assumable loan?


Potential for a buyer to save money!

The assumable feature of an FHA mortgage can have value if the interest rate on the existing loan is lower than the market interest rate for new mortgages. A homeowner with a low-rate assumable mortgage has an additional feature to promote the sale of their home. A home buyer may be willing to pay a higher price than for comparable homes to assume a low interest rate mortgage. An assumable FHA loan will have the most value if interest rates rise steadily in the early years of the mortgage, before the principal has been significantly reduced.

The Typical Assumption Process

A home buyer who wants to assume an FHA mortgage must complete a credit application and go through the loan underwriting process. The lender processing the assumption is allowed to charge for a credit report plus a $500 loan processing fee. If the buyer is approved by the FHA, the lender will complete the paperwork to transfer the mortgage to the new homeowner and the original owner will no longer be responsible for the loan.

How do I find out if I have an assumable loan?

The best place to check would be in your closing paperwork on the “Note”. This document would have the box checked for “Assumable” if it’s the case. This type of loan will carry some significant value over the next few years as interest rates continue to rise and home buyers look to keep their payments low. Feel free to reach out to your mortgage professional or a real estate agent to review the documents and see if selling your home with an Assumable FHA Mortgage is right for you!

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