An assumable mortgage through an FHA or VA loan can help streamline your home purchase, save you money, and get you into a house quickly. But just like any mortgage, though, you need to meet qualifying standards. Yes, even if you’re assuming a VA or FHA loan, you can’t just ignore these guidelines and get a house. You’re only going to end up heartbroken if you try!
Thankfully, at Assumption Solutions, we can help you understand your FHA and VA assumption standards and simplify your application process! We make this application process uncomplicated and can ensure that you qualify before you apply.
Knowing What You’re Getting Into With an Assumable Mortgage
Assumable mortgages are precisely what their name suggests: a mortgage you can take over from the seller. So, rather than applying for and receiving a new loan from a lender, you start paying for one already existing. Not every mortgage is assumable, but FHA and VA loans are among the most common loan types that homebuyers can take over from the seller.
When you get an assumable mortgage, you assume the current loan’s interest rate, principle balance, repayment period, and all other terms on the loan. Obtaining an assumable mortgage is well worth the sometimes challenging steps it takes to get there. Before examining FHA and VA loans, let’s dive deeper into the many benefits of this unique process.
FHA and VA Loans Are the Most Common Assumable Mortgages
In the past, most types of loans were assumable and easy to transfer. However, lenders have greatly decreased the availability of these mortgages to just a handful of choices. There are a few reasons for that, most of which center on the profitability of simply creating an entirely new loan. The most commonly assumed loans on the market today include the following options:
- FHA Mortgages: Provided by the Federal Housing Administration (FHA), these loans are typically easily assumable for most buyers. Note that not every one of these mortgages can be assumed, so make sure you talk with us before you make a decision.
- VA Loans: VA or Department of Veterans Affairs home loans are often assumable. Interestingly, you don’t have to be a veteran or active military member to qualify for assuming one of these loans. The qualification standards are a bit high, though.
- USDA Mortgages: The United States Department of Agriculture (USDA) provides some home loans that may be assumed. That said, they’re far rarer than with FHA and VA mortgages and often occur between family members rather than other buyers.
- Some Other Loans: There are some types of jumbo mortgages that can be assumed: they must not be sold by Fannie Mae or Freddie Mac. Adjustable-rate mortgages or ARMs may also be assumable, though this option is pretty rare in today’s market.
So, while there are four assumable loan types available, it’s fair to say that a vast majority are FHA and VA mortgages. As a result, we’re looking primarily at FHA and VA qualification standards and skipping USDA and other loan types. Focusing on these over much rarer USDA mortgage assumptions can help you make a better buying decision for your real estate needs.
FHA Loan Qualification Standards
FHA loans are unique because they allow you to borrow up to a certain percentage of a home’s value based on your credit score. There are also specific qualification requirements you must meet when applying for one. Even if you’re assuming an existing loan, you have to meet these guidelines if you want to buy a home. They include the following standards:
- Credit Score Qualifications: If you have a credit score of 580 or above, you can borrow up to 96.5% of the home’s value. While you can qualify for these loans with a credit score of 500-579, you’ll only be able to borrow up to 90% of the house’s purchase price.
- Minimum Down Payments: Your minimum down payment for a FHA loan will vary depending on your credit score. Those with a 580+ score need to pay just 3.5% of the home’s total price. Those with lower scores must pay at least 10% of the home’s value.
Now, these qualifications are far lower than other loan types, which is one reason why people find FHA loans appealing. Furthermore, paying a much lower downpayment is great if you don’t have a lot of free capital to throw at a new home. Even better, closing costs are often rolled right into the loan price, though people assuming a loan may not have to worry about this step.
VA Loan Qualification Standards
Department of Veteran Affairs loans have far more forgiving qualification standards than most types. That said, people assuming them must still meet these standards, even if they don’t need to be part of the armed forces to take over a mortgage. Note that VA regulations on loan assumptions, while forgiving, must be met, or you can’t assume a loan properly.
For example, the loan must be current, and the assumer must be contractually obligated to purchase the property and assume full liability. Buyers must also pay a $250-300 assumptions fee that covers underwriting, processing, and closing the assumption. Finally, they have to meet the credit standards set up by the specific VA lender. These include minimum credit scores of:
- Movement Mortgage: 580
- Caliber Home Loans: 580
- Fairway Independent Mortgage: 600
- Guaranteed Rate Inc: 620
- DHI Mortgage: 620
- Veterans United Home Loans: 620
- Navy Federal Credit Union: 620
- USAA: 620
- Rocket Mortgage: 640
Other factors to consider include spousal releases if the original borrower has deceased, whether or not lenders have automatic authority to transfer a loan, and whether or not the VA approves the assumption package. If this process sounds confusing to you, our team at Assumption Solutions can take it over and work you through it to improve your chances.
Why You Really Want to Qualify for an Assumed Mortgage
If you’re a first-time home buyer interested in an assumable mortgage for a home with an FHA or VA loan, it’s essential to know the benefits of this process. Investopedia highlights a few of these advantages, though our team at Assumption Solutions knows a thing or two about assumable mortgages as well. Just a few reasons why you might find them useful include:
- Better Interest Rate: Older homes often have mortgages with much better interest rates than you can get today. When you assume a home loan, you’re likely to get a way lower interest rate than you would otherwise, which can make your home far more affordable.
- Lower Closing Costs: High closing costs are a common issue with many home buyers. They’re often caused by settling the mortgage and transferring ownership to you. Assumable loans skip those steps and cut back on your closing costs.
- Better Price Negotiation: When you’re negotiating a home purchase, you need every bit of leverage you can get to save money. Thankfully, an assumable mortgage gives you more leeway by drastically reducing the money it takes to close a home.
- Minimize Settlement Costs: For the seller, assumable mortgages often provide lower settlement costs because they’re simply transferring the loan directly to the new owner. If you’re buying a home, this means you could get a lower asking price.
While these are significant advantages, knowing a few assumable mortgage downsides is essential. For example, this process doesn’t cover the price not paid for by the mortgage. So, if a home is on the market for $350,000 and the mortgage is $200,000, you must find $150,000 to buy it. That might require a second loan with a higher interest rate, which can cost more money.
Ultimately, issues like these don’t negate the advantages that assumable loans provide buyers like you. They’re particularly useful if you’re buying a home with FHA or VA loans and aren’t sure how assumption works. On that note, let’s take a look at the qualifications you need to meet when attempting to qualify for an assumable loan for your new home.
Simplifying The Loan Assumption Process: We’re Here for You!
If you’re interested in an assumable mortgage, here’s a step-by-step guide to assuming a home loan. The basic process is the same for both FHA and VA loans, though you can contact us at Assumption Solutions and FHA and VA lending experts to better walk through these steps:
- Find a Home With an Assumable Mortgage: Read through home listings in your area to find one with an FHA or VA loan. Talk with the property’s real estate agent about this information if it’s not shared in the listing. They’ll often be more than happy to help you.
- Read the Loan Terms: Go over the loan’s current terms, including its interest rate, remaining balance, loan duration, and other terms. Talk with us or your real estate agent about whether or not these terms make the most sense for your buying needs.
- Make Sure You Qualify: We already discussed the qualification guidelines for assumable loans above, so we won’t go into them too heavily here. Just know that you have to submit an application with the details required to help your lender choose.
- Wait for Lender Approval: It could take a few days or even weeks for your lender to approve your assumable mortgage. There’s not much you can do but wait. Try to avoid calling them frequently because that’s more likely to annoy them than anything.
- Complete the Sale: After mortgage approval, you will agree to the sale terms, sign the assumption agreement, pay the assumption and closing costs, and complete the transfer of the property. In this way, this process is not that different from a traditional experience.
Get Ready to Buy Your New Home With Assumption Solutions
If an assumable mortgage sounds like a great opportunity for you, please don’t hesitate to contact us at Assumption Solutions today to get going. We can not only help you better understand these loan types but also provide services like mortgage assumption classes that can streamline this experience. You can call us at (719) 527-3380 or use our in-depth contact form to schedule an appointment with us. We’re open 9 a.m. to 5 p.m. Monday through Friday.
