FHA and VA Loans are Assumable Loans

by Herb Rim

Many Realtors don't realize that a seller with a low rate on a FHA or VA loan might be able to be utilized by the next buyer with the buyer assuming the prior loan, and a 2nd TD can be established for any additional adjustments. There are some criteria required, but this is a great opportunity and should not be ignored.

FHA and VA loans are both assumable loans. This means that a buyer can take over the existing mortgage terms from the seller, rather than having to get a new loan. This can be a great benefit for both the buyer and the seller.

Benefits of loan assumption for the buyer:

Lower interest rate: If the seller has a low interest rate, the buyer can keep that rate by assuming the loan.
Lower closing costs: Closing costs are typically lower for an assumed loan than for a new loan.
No need for appraisal: An appraisal is not required for an assumed loan, which can save time and money.

Benefits of loan assumption for the seller:

Faster sale: An assumable loan can make a property more attractive to buyers, which can help the seller sell their home faster.
Lower closing costs: The seller can avoid paying some of the closing costs associated with a new loan.

Eligibility for loan assumption:

In order to assume an FHA or VA loan, the buyer must meet certain eligibility requirements. These requirements may include:

Creditworthiness: The buyer must have good credit.
Debt-to-income ratio: The buyer's debt-to-income ratio must be within a certain limit.
Employment: The buyer must be employed and have a steady income.

Process for loan assumption:

The process for assuming an FHA or VA loan typically involves the following steps:

The buyer and seller agree to the assumption.
The buyer applies to the lender to assume the loan.
The lender reviews the buyer's application and underwriting information.
If the buyer is approved, the lender prepares the closing documents.
The closing takes place, and the buyer assumes the loan.

If you are considering assuming an FHA or VA loan, it is important to talk to a mortgage lender to learn more about the process and the eligibility requirements.