How to Assume an FHA Loan: Complete Walkthrough

FHA loans are some of the most common assumable mortgages out there, and the process is more straightforward than most people think. Let me walk you through it.

All FHA loans originated after December 15, 1989 are assumable. That covers basically every FHA loan you'll encounter today. And unlike VA assumptions, there's no entitlement issue to worry about. If you qualify, you can assume it. Period.

What You Need to Qualify

FHA assumptions require the buyer to meet standard FHA loan requirements:

• **Credit score:** Minimum 580, though most servicers prefer 620-640. If you're at 580, it's doable but expect more scrutiny.
• **Debt-to-income ratio:** Under 50% per FHA guidelines, though lower is always better. Under 43% is the sweet spot.
• **Employment:** Stable employment history. Two years in the same field is ideal.
• **Income verification:** Pay stubs, W-2s, and possibly tax returns.

If you can qualify for a regular FHA mortgage, you can qualify for an FHA assumption. The requirements are basically the same.

The Equity Gap (Your Real Cash to Close)

This is the part people get confused about. The equity gap is not a "down payment" in the traditional sense.

Here's an example: home is listed at $400,000. The seller's FHA loan balance is $310,000. The equity gap is $90,000.

That $90,000 is what you need to bring to the table. You have options:

• **Cash.** If you've got it, this is simplest.
• **Second mortgage.** Companies like SpringEQ offer them with as little as 5% down on your primary residence. So you might put 5% down ($20,000) and finance the rest.
• **HELOC.** If you own another property, you can tap that equity.
• **Gift funds.** FHA allows gift funds for the equity gap, just like they allow gift funds for traditional down payments.

The key thing: you're financing way less at the higher rate. Your primary mortgage (the assumed loan) is at 2.75% or whatever the seller locked in. Only the second mortgage (if you need one) is at today's rate. And that's a much smaller amount.

The Process, Start to Finish

1. **Find the property.** I track over 1,100 assumable homes in Colorado. The listing may or may not mention the assumable loan.

1. **Get pre-screened.** Before you make an offer, it helps to know you'll qualify. Our partner UMe can pre-screen you quickly.

1. **Make your offer.** Include an assumption contingency and your plan for the equity gap.

1. **Submit assumption package to servicer.** This includes your application, income docs, credit authorization, and the purchase agreement. An assumption processor handles this for you.

1. **Servicer review.** The servicer underwrites you just like a new loan application. They verify everything and make their decision. This typically takes 30-60 days.

1. **Closing.** Title transfers, you sign assumption documents, pay your equity gap and closing costs, done.

Total timeline: 45-90 days from offer acceptance to closing. Some servicers move faster, some slower.

What It Costs

Here's why assumption closing costs are so much lower than a new mortgage:

• **FHA assumption fee:** About $1,800
• **Assumption processor fee:** 1% of purchase price (UMe's standard)
• **Title insurance and recording fees:** Standard amounts, varies by county
• **No origination fee.** The loan already exists.
• **No appraisal** in many cases (depends on servicer)

Compare that to a new FHA mortgage where you're paying origination fees, appraisal, MIP upfront, and all the other lender costs. Assumptions save you thousands on closing costs alone.

FHA Assumptions vs. VA Assumptions

The biggest practical difference: FHA assumptions don't have the entitlement complication that VA loans do. With VA assumptions, the seller's VA entitlement stays tied to the loan if a non-veteran assumes it. That makes some VA sellers hesitant.

FHA? No such issue. Once you assume the loan, it's fully yours. The seller walks away clean.

Both loan types offer incredible rates from the 2020-2021 era. Both have similar qualification processes. FHA assumptions are often slightly easier because there's less seller hesitation.

Common Questions

"Do I need to pay mortgage insurance (MIP)?" The existing MIP terms carry over with the loan. If the seller's loan has MIP, you'll continue paying it. But at a 2.75% rate with MIP, you're still paying way less than a new 7% mortgage without MIP.

"What if the seller owes more than the home is worth?" Then an assumption might not make sense because you'd be taking on negative equity. Always compare the loan balance to current market value.

"Can I refinance later?" Absolutely. You can refinance out of the assumed loan anytime. Though with a 2.75% rate, I'm not sure why you'd want to. But the option is there.

"What if the servicer is slow?" They sometimes are. This is exactly why you want an experienced assumption processor on your side. They know how to push the servicer and keep things on track.

Why This Matters Right Now

The average FHA assumable rate in Colorado is around 3.1%. The current market rate is around 7%. On a $350,000 loan, that rate difference saves you roughly $900 per month. Over 25 years, that's $270,000.

These loans exist right now. They're sitting there, waiting for a buyer who knows about them. Most buyers don't. Most agents don't. But now you do.