More and more homeowners with FHA loans are starting to look into loan assumptions as interest rates climb. An FHA loan assumption allows a new borrower to take over (assume) the remaining balance, interest rate, and terms of your FHA mortgage.
So, why should you consider this? If you locked in a low rate on your FHA loan, that rate can be a huge selling point in the current high-rate market. A buyer who assumes your loan could save significantly on interest costs. As the seller, having an assumable FHA loan can smooth out the sale and potentially lead to quicker closing and easier exit from your mortgage obligation.
This guide for current FHA loan holders who want to transfer their mortgage to another person explains how FHA loan assumptions work, the pros and cons, the step-by-step process, and important considerations like liability release. So, if you’re wondering, “Is my FHA loan assumable?” or how to advertise an FHA loan transfer to buyers, keep reading!
If a loan is assumable, a new borrower can step in and take over the payments and terms of the loan as if they were the original borrower. Unlike most conventional mortgages with strict due-on-sale clauses, FHA loans are generally designed to be assumable.
Only FHA-insured loans are eligible for FHA assumptions. If your mortgage is a conventional loan or another type without an assumption clause, it likely cannot be assumed.
If you do have an FHA loan, check its origination date because FHA loans originated on or after December 15, 1989, include a qualifying assumption clause, meaning a new buyer can assume the loan if they meet the lender’s approval criteria.
FHA loans from earlier dates may still be assumable but have different rules. For instance, FHA loans before late 1989 don’t obligate the lender to release the original borrower from liability even if assumed.
Most current FHA loans (from the 1990s onward) are assumable with lender approval.
FHA loans have an important caveat: the new borrower must intend to occupy the home as their primary residence.
Transfers to investors or non-occupants are not allowed; in fact, HUD instructs lenders to demand full loan payoff (due-on-sale) if selling the property to someone who will not use it as a personal residence.
The assuming party also must be creditworthy. In other words, the lender (or FHA servicer) requires the new borrower to undergo a qualification process, including a credit check and income verification, before approving the assumption, thereby protecting the FHA program from non-qualified or risky borrowers taking over loans.
Most government-backed loans (FHA, VA, and USDA) are assumable, but don’t just assume you are good to go. Verify it.
First, review your mortgage documents, especially the Note or Deed of Trust, which often states whether the loan can be assumed and under what conditions. Look for language about “assumption” or “due-on-sale.”
If the documents are unclear or you want absolute confirmation, call your lender or loan servicer and ask directly. Explain that you are considering a loan transfer and ask if your FHA loan is assumable and what steps are required.
Allowing someone to assume your FHA loan can be beneficial in the right situations.
If you decided an assumption is the route to take, here’s a step-by-step look at how to make it happen.
Before anything else, double-check that your mortgage is indeed an FHA loan and that it has an assumable clause by reviewing your documents and calling your lender. While on the phone, ask about requirements and fees.
You can market your assumable FHA loan as a selling point. If you already have a buyer in mind (such as a family member or friend to whom you’re transferring the property), that would be even better.
Once you have a buyer, notify your lender to start the assumption process. The lender provides application forms and request financial documents from the buyer.
The buyer must meet FHA guidelines, including minimum credit score, acceptable debt-to-income ratio, and intent to occupy the home (FHA will not allow an investor or non-occupant to assume the loan).
If they don’t qualify, the assumption won’t be approved.
Probably the most important step here is to have the buyer sign an assumption agreement, which states that they’re taking over the obligation of the loan. You (the seller/original borrower) should also sign documents that release you from liability on the mortgage.
In FHA transactions, the lender uses form HUD-92210.1 (Approval of Purchaser and Release of Seller) to formally substitute the new borrower for you on the loan. Make sure this release of liability (sometimes called a novation) is part of the closing package. It’s essentially the bank’s agreement that you are no longer responsible for the debt after the assumption.
We’ve touched on this already, but it bears repeating. You need to get a release of liability when your FHA loan is assumed to protect you from future financial responsibility once handing over the loan.
If your FHA loan is assumed but you don’t get a formal release, you remain legally responsible for the mortgage, even after transferring ownership, and without a release, missed payments by the new borrower can damage your credit or result in foreclosure actions against you.
For FHA loans issued after 1989, lenders must release the original borrower when the buyer qualifies by using HUD Form 92210.1, which must be signed at closing. But this release isn’t automatic; you must request it.
If you have an FHA loan with a low interest rate, you possess a valuable asset in today’s market, and yoy want to market it effectively when selling your home.
Make your rate the headline by adding phrases like “Assumable FHA loan at 3.5% interest” to your listing and ads. Show buyers how much they could save monthly compared to current rates and spell out the real-dollar benefit. This gets attention.
Use your MLS’s financing fields to flag the loan as assumable. If not available, mention it in public remarks by writing something like, “Assumable FHA financing for qualified buyers.”
Post on niche platforms like AssumeList to reach rate-conscious buyers specifically searching for this feature.
Don’t assume every buyer or agent who sees your listing understands what “assumable FHA loan” entails. Be prepared to explain it in simple terms. You might create an information sheet available at showings to outline how the assumption would work.
Life doesn’t always go as planned, and the Distressed Asset Stabilization Program (DASP) is meant to help.
But if you find yourself underwater (owing more than the home’s current value), an assumption is unlikely since buyers rarely take on more debt than a home is worth (unless you sell to a family member wanting to keep the home in the family). Instead, the FHA may allow a Pre-Foreclosure Sale (short sale) or Deed-in-Lieu to help you exit the mortgage.
If you're behind on payments, assumption is possible. The FHA considers it a valid foreclosure alternative if the new buyer is qualified and the arrears are paid at closing.
For any hardship, consult a HUD-approved housing counselor to explore all options, including modification or assumption with liability release.
If your loan is an FHA loan (typically post-1989) and the buyer qualifies, you can have someone assume it.
The easiest way to determine if your loan is assumable is to check your mortgage documents or call your lender to confirm.
If you get a formal release from your lender at closing, you will not be liable for the loan after it’s assumed.
Request HUD Form 92210.1 from your lender and ensure it’s signed.
Yes, all FHA assumptions require lender approval and buyer qualification.
Yes, the buyer must qualify based on credit, income, debt, and occupancy requirements.
When you complete a loan assumption, the person assuming the loan will pay the difference between the loan balance and the sale price.
Yes, the buyer must cover your equity.
The best way to market your home as assumable is to include the low interest rate in listings.
Yes, if the buyer covers the missed payments and the lender approves.
