FHA vs VA Assumable Loans: What's the Difference?

Both FHA and VA loans are assumable, and both offer incredible rates from the 2020-2021 era. But they work differently in some important ways. Here's the breakdown.

The Big Difference: Entitlement

This is the single most important distinction.

FHA: When you assume an FHA loan, the seller is completely released from the loan. Clean break. No lingering financial connection. The loan is 100% yours and the seller walks away free.

VA: When you assume a VA loan, the seller's VA entitlement stays tied to the loan (unless the buyer is also a veteran who substitutes their own entitlement). This means the seller can't use that VA benefit for another home purchase until you pay off or refinance the loan.

This entitlement issue is why some VA sellers are hesitant about assumptions, especially if a non-veteran is assuming. It's a real consideration. About 10-20% of VA sellers are what I call "hand raisers," meaning they're willing to let their entitlement stay tied and sell to non-veterans.

If the buyer IS a veteran, they can substitute their own VA entitlement, which frees up the seller's entitlement. That's the ideal scenario for the seller.

Qualification Requirements

FHA Assumptions:

• Credit score: 580 minimum (servicers prefer 620+)
• DTI: Under 50% (FHA maximum)
• Income: Must meet standard FHA requirements
• Anyone can assume (no military requirement)
• MIP (mortgage insurance) continues

VA Assumptions:

• Credit score: No official minimum (but servicers review credit thoroughly)
• DTI: Under 41% (VA guideline, with some flexibility)
• Income: Must meet VA residual income requirements
• Both veterans and non-veterans can assume
• No mortgage insurance required (one of VA's biggest perks)

The no-MIP advantage on VA loans is significant. FHA loans carry mortgage insurance for the life of the loan (if you put less than 10% down). VA loans don't have mortgage insurance at all. That can save $200-$400/month depending on the loan amount.

Costs Comparison

FHA assumption fees: About $1,800 assumption fee plus standard closing costs.

VA assumption fees: About $300-$500 assumption fee plus standard closing costs.

VA assumptions are cheaper on the assumption fee itself. Both avoid origination fees and often skip the appraisal.

With an assumption processor like UMe, you're also paying their 1% fee on either type.

Rates Available

Both FHA and VA loans from 2020-2021 have similar rate ranges:

• FHA: Typically 2.5% - 3.75%
• VA: Typically 2.25% - 3.5%

VA rates tend to be slightly lower because VA loans don't require mortgage insurance, which means lenders can offer better rates. But the difference is small, usually a quarter point or less.

Availability

There are more FHA assumptions available than VA. Why? Because FHA loans are more common overall. Anyone who qualifies can get an FHA loan, while VA loans are restricted to military-connected borrowers.

In Colorado, roughly 60% of the assumable inventory is FHA and 35% is VA (with the remaining 5% being USDA). Your options are broader with FHA, but VA loans often have the better rates and no mortgage insurance.

Practical Differences in the Process

FHA assumptions tend to be smoother because:

• No entitlement complication
• Seller has no ongoing connection
• Listing agents are less resistant

VA assumptions can require more negotiation because:

• Seller needs to understand entitlement implications
• Listing agents may be unfamiliar and resistant ("gatekeepers")
• Seller may prefer a veteran buyer who can restore their entitlement

Both types go through the same basic process: submit package to servicer, get reviewed, close. The servicer review is similar for both.

Which Should You Pursue?

My honest advice: pursue whichever one has the best rate and terms for a specific property you like. Don't limit yourself to only FHA or only VA.

If you're a veteran: VA assumptions are ideal because you can restore the seller's entitlement, making your offer more attractive.

If you're a non-veteran: FHA assumptions are simpler because there's no entitlement discussion. But don't rule out VA. Many VA sellers are willing to work with non-veterans, especially if it means a faster sale or better price.

If the rate is the same: FHA assumptions are slightly easier to close. If the VA rate is notably lower or the loan has no MIP: the savings might make the VA assumption worth the extra effort.

Bottom Line

Both are excellent options. Both save you massive amounts compared to today's rates. The "best" type is whichever one is attached to the home you want to buy at the rate you want to lock in.

Don't overthink the FHA vs. VA question. Focus on finding the right property at the right price with the right rate. That's what drives the savings.