National real estate headlines and online Zillow estimates don't know what's actually happening on the ground here in Mendocino, Western Lake, or Northern Sonoma counties. They don't know your well
Discover the benefits of an FHA Assumption
Dated: February 16 2024
Views: 88
With new mortgage rates approaching 8%, many buyers have decided to wait for rates to come down. While there may be some easing in the fourth quarter of 2023 and 2024, assuming an existing FHA mortgage with a lower rate made in the last three or four years might be a much better alternative.
Since December 1, 1986, FHA has had the right to approve the purchaser of an existing FHA loan. Prior to that, anyone, regardless of credit worthiness or other qualifications, could assume an existing FHA loan.
Existing FHA mortgages are assumable at the current interest rate for owner-occupied buyers. The benefit is that the rate could be much lower than a new current mortgage. The borrower must qualify for the loan under current FHA underwriting guidelines, but it will be easier because the payment will be lower due to a lower assumable mortgage rate.
The buyer's closing costs on an assumption are less than a new FHA loan because an appraisal and survey are not required. The transfer fee is $500 instead of the 1% loan origination on a new loan.
An existing mortgage is further into the amortization schedule than originating a new loan which means there is more being applied to the principal each month accelerating the payoff. Another benefit is that lower interest rate loans amortize quicker than higher interest rates loans.
It will generally take a larger initial cash investment on an assumption to buy the equity than buyers were planning to use as a down payment. Secondary financing can be used for the difference which is referred to as the assumption gap. Purchase Price less Existing Balance on Mortgage = Equity less Planned Down Payment = Assumption Gap.
The difficulty is that lending institutions are slow to add second mortgages to their offerings. Another reality is that lenders make much more money on a new loan than an assumption. Alternative sources for the second loan could be the seller, relatives, credit unions, local banks, and hard money lenders.
Conventional loans have had a "due on sale" clause in their loan documents since the early 1980s which not only require the borrower to qualify for the assumption but allows them to escalate the interest rate to the current rate. For practical reasons, there is no benefit to assuming a conventional loan; the borrower might as well get a new conventional mortgage.
Buyers who assume an FHA mortgage without obtaining lender approval risk triggering the due-on-sale clause.
Lenders must grant a release of liability to the original borrower (seller) if the assumptor (buyer) is approved and agrees to execute a statement to assume and pay the mortgage debt.
The practical difficulty in finding assumable FHA loans is that there is no searchable field in most MLS databases and anything identifying it as an assumable mortgage is limited to the description or the agent comments.
Another issue is that many agents have never done an assumption and, in some cases, are not even aware that FHA mortgages are assumable at the original mortgage rate. An experienced agent can show you the savings on an assumption compared to a new mortgage at current interest rates and knows how to locate assumable loans.
If you're interested in learning more about it, find an agent familiar with FHA, VA, & USDA assumptions. Each type of mortgage has slightly different requirements, but each is assumable.
Clinton Hanks
I grew up right here in Redwood Valley and I live just a few miles from the house I grew up in. That’s not a marketing point—it’s just context for what came next. My path included 5 years as a....
Latest Blog Posts
Every time rates or prices come up in the news, someone frames it as homeowners being in trouble. Too much mortgage debt. Too much exposure. On the surface, that story sounds reasonable.The numbers
Homeowners are sitting on more equity than at almost any point in history. CoreLogic puts the average mortgaged homeowner at over $300,000 in equity, and collectively, Americans are holding
Let’s be real for a second: between sky-high prices, interest rates that won't take a hint, and the daunting pile of cash needed for a down payment, buying a home right now feels a bit like
Based on information from California Regional Multiple Listing Service, Inc. as of September 11, 2026 2:25 AM UTC This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.
Based on information from California Desert Association of Realtors as of September 11, 2026 1:53 AM UTC The information being provided by California Desert Association of Realtors, SoCalMLS, CRISNet MLS, and CARETS is for the consumer's personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumer may be interested in purchasing. Any information relating to real estate for sale referenced on this web site comes from the Internet Data Exchange
All data, photos, visualizations, and information regarding a property, including the property's compliance with state and local legal requirements and all measurements and calculations of area, have been obtained from various sources, and may include such material that has been generated by use of artificial intelligence. Such information and material have not been and will not be verified for accuracy by the listing broker or the multiple listing service, and are not guaranteed as complete, accurate or reliable. Such information and material should be independently reviewed and verified for accuracy. This information and material are intended for the personal use of consumers and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Copyright ©2026 Bay Area Real Estate Information Services, Inc. All Rights Reserved.
