Loan Assumption

When someone says they want to "assume your mortgage," they're proposing to take over your existing loan—keeping its terms, including the interest rate. This page explains how loan assumption works, which loans qualify, and what it means for your ongoing liability.

Which Loans Can Be Assumed

Not all mortgages can be assumed. Whether assumption is even an option depends on your loan type.

FHA loans are assumable with lender approval. VA loans can be assumed by any creditworthy buyer—they don't have to be a veteran. USDA Rural Development loans are also assumable, though the buyer must meet USDA eligibility requirements including income limits for the area.

Conventional loans—those not backed by a government program—typically cannot be assumed. They contain due-on-sale clauses that allow the lender to demand full repayment when the property transfers. The Garn-St. Germain Act of 1982 gives lenders the right to enforce these clauses, and most do.

If you have a conventional loan, assumption generally isn't available. The remaining options involve either paying off the loan at sale or transferring the property while keeping the loan in place (subject-to), which has different implications for your liability.

Having an assumable loan is only the first step. The buyer still needs to qualify.

The Buyer Must Qualify

Having an assumable loan doesn't mean any buyer can simply take it over. The buyer must qualify with the lender, just like applying for a new mortgage.

For FHA loans, the buyer needs to meet FHA credit requirements—typically a minimum credit score of 580 for full financing and acceptable debt-to-income ratios. VA loan assumptions require the buyer to demonstrate creditworthiness through income verification, credit analysis, and debt evaluation. The lender performs full underwriting: verifying employment, reviewing pay stubs and tax returns, and analyzing the buyer's financial picture.

This isn't a rubber-stamp process. Lenders can and do decline assumption applications when buyers don't meet qualification standards. If your buyer can't qualify, the assumption won't happen—regardless of how willing both parties are.

Even when the buyer qualifies and the assumption closes, there's something else you need to know.

Liability Release Isn't Automatic

Here's what many sellers don't realize: completing an assumption doesn't automatically release you from the loan. Without explicit written release from the lender, you remain liable even after the buyer takes over.

Full liability release requires a novation agreement or formal release document from the lender. A novation substitutes the new borrower for you, creating a new contract that removes your obligation entirely. Without this documentation, you remain secondarily liable—meaning if the buyer defaults years later, the lender can pursue you for any deficiency.

For FHA loans, the lender must specifically approve the buyer's creditworthiness and execute a release for you to be off the hook. This doesn't happen automatically when assumption closes. You must request it, and it must be documented in writing.

The assumption itself transfers payment responsibility to the buyer. But your legal obligation to the lender persists until you have explicit release documentation.

The Practical Realities

How Long Assumption Takes

Assumption isn't quick. Because it involves full lender underwriting, the process typically takes 45 to 90 days for FHA loans and 60 to 90 days or longer for VA loans.

During this time, the buyer completes a full loan application with all the documentation that implies: pay stubs, W-2s, tax returns, bank statements, and employment verification. The lender reviews everything, orders appraisals if needed, and makes an underwriting decision.

This timeline contrasts sharply with other transaction types. A cash sale can close in two weeks. A subject-to transaction can close in days because it bypasses lender involvement entirely. Assumption requires patience and planning—both buyer and seller need to build this processing time into their expectations.

Timeline isn't the only practical consideration. There's also the question of money.

The Buyer Pays the Difference

The assumed loan only covers its current balance. The buyer must pay the difference between that balance and the purchase price—in cash or through separate financing.

Consider a home worth $400,000 with a $250,000 loan balance. The buyer assuming the loan must bring $150,000 plus closing costs. That's a significant cash requirement that limits who can realistically assume.

Some programs allow secondary financing to bridge this gap, but that means the buyer qualifies for two loans, adding complexity. In practice, assumptions work best when the loan balance is close to the purchase price—meaning lower equity properties or recent purchases where the seller hasn't built much equity.

In rising-rate environments, buyers are motivated to assume favorable loan terms. But properties with substantial equity may have smaller buyer pools simply because fewer buyers can bridge the gap.

VA Loan Considerations

VA loans have additional assumption rules that affect both the transaction and your future benefits.

The assuming buyer pays a VA funding fee—typically 0.5% of the loan balance—unless they're a veteran exempt from the fee. This is a cost the buyer should anticipate.

More significantly for sellers: if a non-veteran assumes your VA loan without proper entitlement substitution, your VA loan entitlement remains tied to that property. This means you may not have full entitlement available for your next VA loan purchase until the assumed loan is paid off.

There's a way around this. If the assuming buyer is also a veteran with available entitlement, they can substitute their entitlement for yours, restoring your ability to use VA financing for a future purchase. This requires the buyer to be VA-eligible and willing to use their entitlement.

Understanding Your Options

How Assumption Differs from Subject-To

Assumption and subject-to both involve a buyer taking over an existing loan, but they work differently—and the difference matters for your liability.

In an assumption, the lender is involved. They approve the new borrower, underwrite the transaction, and can release you from liability. The buyer formally becomes the borrower.

In a subject-to transaction, the lender isn't involved at all. The buyer takes over payments, but your name stays on the loan. The lender still considers you the borrower. You cannot be released from liability because there's no lender action to release you.

The tradeoff is time versus liability. Subject-to can close in days because it bypasses lender approval. Assumption takes months but offers something subject-to never can: a path to being completely off the loan.

For a complete explanation of how subject-to works, see Subject-To Transactions.

What Assumption Actually Means for You

Assumption isn't a simple transfer where the buyer takes over and you're done. It's a structured process where the lender approves a new borrower—and where you can, if done properly, actually be released from the loan.

That's the distinction worth understanding. Assumption offers something that subject-to transactions cannot: a legitimate path to being completely off your mortgage. But this path requires the right loan type (FHA, VA, USDA), a buyer who can qualify, time for the process, and explicit release documentation.

The process is slower than subject-to. The buyer pool may be limited by equity gaps and qualification requirements. But for sellers who want a clean exit—truly done with the loan, not just done making payments—assumption is the structure that can provide it.

Whether this tradeoff makes sense depends on your priorities. If you need speed, other options may work better. If you want certainty that you're fully released from liability, assumption is worth the wait.

Related Pages

Situations where this applies:

• When Your Loan Is the Asset — when buyers want your loan terms

• When You're Equity-Constrained — creative structure options

• When You Just Want Out — exit path comparison

Related structures:

• Subject-To Transactions — how it differs from assumption

• Seller Financing — another creative structure

Go deeper:

• Understanding Seller Risk — risk framework for all structures

• Red Flags and Warning Signs — what to watch for

Disclaimer: Loan assumption rules and liability release requirements may vary by lender and loan program. State laws affecting deficiency judgments vary. This information is educational and does not constitute legal or financial advice. Consult with appropriate professionals for your specific situation.

For help evaluating a specific assumption offer, see Questions to Ask Before Signing.