Stewardship Capital
Assuming a VA or FHA Loan
Some VA and FHA loans can be taken over by a new buyer. This is called an assumption. The buyer steps into the seller's existing loan instead of getting a brand new one. This page explains who can do it, how it works and why it takes patience.
What does it mean to assume a loan?
When you assume a loan, you take over the seller's current mortgage. You take on the balance, and the loan keeps the terms it already has. If the servicer approves, the seller is released from the loan.
It is not a new loan. It is a handoff of the old one, and the servicer has to approve it.
Which loans can be assumed?
VA and FHA loans are the main ones. Most conventional loans cannot be assumed. Even with VA and FHA, the buyer must still be approved, so it is not automatic. The servicer decides, so the first step is to ask the servicer whether the loan can be assumed and how their process works.
Who can assume a VA loan?
The buyer does not have to be a veteran. A non-veteran can assume a VA loan if they qualify. The servicer reviews the buyer's credit and income, and the buyer generally has to plan to live in the home. Learn more about VA loans.
Why does VA entitlement matter for the seller?
Entitlement is the benefit a veteran uses to get a VA loan. When a VA loan is assumed, the seller's entitlement can stay tied up in that loan. That can limit the seller's use of VA benefits on the next home.
If the buyer is an eligible veteran who substitutes their own entitlement, the seller's entitlement can be freed up. This is called entitlement substitution. Sellers and agents should ask about it early, before the contract is written.
Who can assume an FHA loan?
The buyer generally has to qualify with the servicer by showing credit and income, and plans to live in the home as a primary residence. The servicer sets the details for the review.
What about the gap between the price and the loan balance?
An assumed loan only covers what the seller still owes. If the sale price is higher than the balance, the buyer has to cover the difference. That may mean cash, or a second loan if one is allowed.
This is often the biggest hurdle. Whether a second loan is allowed varies by loan and by lender. Stephen can help buyers think through the options. See our buy a home page for how we help buyers.
How does the process work?
- The seller finds out the loan type and who the servicer is, and asks if the loan can be assumed.
- The buyer applies with the servicer and sends income, credit and savings documents.
- The servicer reviews the file. For a VA loan, this includes the entitlement question.
- The servicer issues its approval, and the seller asks for a written release.
- Both sides sign and the home changes hands.
Steps and forms vary by servicer.
Why does an assumption take longer?
Servicers handle far fewer assumptions than new loans. There is extra review, and the servicer controls the timeline. Buyers, sellers and agents should build in extra time and keep a backup plan.
How can Stephen help?
Stephen helps buyers compare an assumption with a new loan, so they can choose what fits their plan. He also helps gather documents and explains what to expect. The servicer makes the approval decision, and no one can promise the result.
Frequently asked questions
Is every VA or FHA loan assumable?
Not automatically. The servicer has to confirm the loan can be assumed and approve the buyer. Ask the servicer first.
Do I have to be a veteran to assume a VA loan?
No. A non-veteran can assume a VA loan if the servicer approves them. The seller's VA entitlement is the part to plan for.
What is entitlement substitution?
It is when an eligible veteran buyer replaces the seller's VA entitlement with their own. That can free up the seller's entitlement for a future VA loan.
How long does an assumption take?
It is usually slower than a new loan, and the servicer sets the pace. Ask the servicer for their timeline and add extra room in the contract.
Will the buyer need cash?
Often yes. The buyer usually has to cover the gap between the price and the loan balance. A second loan may be possible in some cases, but it varies.
Is the seller released from the loan?
That should be part of the approval. Sellers should ask the servicer for a written release of liability.
Have a VA or FHA loan you want to pass on?
Tell Stephen about the loan or the home you are looking at. He will help you decide whether an assumption or a new loan makes more sense.
Talk with StephenThis is not a quote, a commitment to lend or an offer of credit. Stephen Chakerian, NMLS #2193331 | Stewardship Capital, a team of Barrett Financial Group, L.L.C., NMLS #181106 | Equal Housing Opportunity.