What is an assumable mortgage? It's a home loan a buyer can take over from the seller, keeping the existing interest rate, balance and remaining term. In practice, the loans that are assumable in Arizona are mostly FHA and VA loans, and the buyer still has to be approved by the loan servicer. Most conventional loans have a due-on-sale clause that requires payoff when the home sells.
Why buyers ask: when a seller's loan carries a lower rate than today's market, assuming it can lower the monthly payment. The trade-off is cash: the buyer usually needs to cover the difference between the purchase price and the remaining loan balance, in cash or with a second loan.
Data note: Requirements and fees come from VA Circular 26-23-10, VA.gov, HUD's FHA INFO 2024-30, 24 CFR 203.512 and 12 U.S.C. 1701j-3. Specific rates are not quoted because they vary by loan. No market statistics are included in this post.
Assumable Mortgages at a Glance
- FHA loans: assumable with a creditworthiness review of the buyer (24 CFR 203.512)
- VA loans: assumable when the loan is current, the buyer is creditworthy and the buyer assumes full liability
- Conventional loans: usually include a due-on-sale clause, which federal law allows lenders to enforce, with limited exceptions
- What transfers: the rate, balance and remaining term
- What doesn't: the seller's equity. The buyer pays that difference at closing
How a VA Loan Assumption Works
VA Circular 26-23-10 lays out the rules:
Approval
- The loan must be current
- The buyer must qualify on credit and take on full liability for the loan
- Servicers with automatic authority must decide within 45 days of a complete package, and a denied buyer can appeal to VA within 30 days
Fees
- VA funding fee: 0.5% of the loan balance, unless the buyer is exempt (for example, veterans receiving VA compensation for a service-connected disability)
- The funding fee is paid at closing and can't be financed into the assumed loan
- Processing fee: capped at $300 for servicers with automatic authority, or $250 if VA approves the assumption
The Entitlement Question Sellers Must Understand
- Without substitution: if the buyer isn't a veteran using their own entitlement, the seller's VA entitlement stays tied to that loan until it's paid off. That can limit the seller's next VA purchase
- With substitution: an eligible veteran buyer who will occupy the home and has enough entitlement can substitute theirs, which restores the seller's entitlement
How an FHA Loan Assumption Works
- Free assumability: federal rules bar FHA lenders from restricting assumptions except as the rules allow (24 CFR 203.512)
- Credit review: at least one person acquiring ownership must be found creditworthy under HUD standards
- Occupancy: lenders can't approve a transfer to a buyer who won't use the home as a primary residence (or a secondary residence HUD permits), so investors generally can't assume
- Processing fee: HUD's FHA INFO 2024-30 raised the maximum fee a lender may charge for processing an assumption from $900 to $1,800
Why Most Conventional Loans Aren't Assumable
The Garn-St Germain Act (12 U.S.C. 1701j-3) lets lenders enforce due-on-sale clauses. It also lists exemptions for homes with fewer than five units, including transfers:
- To a relative after the borrower's death
- To a spouse or children who become owners
- Under a divorce decree or property settlement
- Into a living trust where the borrower remains a beneficiary
These exemptions protect families. They don't make a conventional loan assumable for an unrelated buyer.
Writing an Assumption Into an Arizona Contract
- The Arizona REALTORS resale contract includes "Assumption" as a financing type and a Loan Assumption addendum
- Build in time: the VA's 45-day decision window can run longer than a typical close
- Plan the gap: confirm how you'll cover the equity difference before you write the offer
- Ask for the loan details early: the rate, balance, payment and loan type from the seller's statement
If an assumption doesn't pencil, compare a rate buydown or price reduction. First-time buyers should also review Arizona down payment programs.
Pros and Cons
For Buyers
- Pro: a potentially lower rate than a new loan
- Pro: VA funding fee of 0.5% on an assumption
- Con: more cash needed for the seller's equity
- Con: a longer, servicer-driven timeline
For Sellers
- Pro: a feature that can make the listing stand out
- Con: with a VA loan, entitlement may stay tied up without substitution
- Con: you depend on the servicer's approval schedule
“When a seller has a low-rate FHA or VA loan, I put it front and center, because for the right buyer it can change the whole math of the purchase. But I always walk both sides through the cash gap and the timeline first. An assumption works best when everyone knows up front how the equity will be paid and how long the servicer will take.”
— Elizabeth Vijan, Tackett Team, eXp Realty
FAQ: Assumable Mortgages in Arizona
What is an assumable mortgage?
A loan the buyer takes over, keeping the rate and remaining term.
Can you assume a VA loan if you are not a veteran?
Yes, with approval. The seller's entitlement stays tied up.
How much does it cost to assume a mortgage?
VA: 0.5% funding fee plus up to $300. FHA: up to $1,800.
How long does a loan assumption take?
VA servicers have 45 days after a complete package.
Curious Whether an Assumable Loan Could Work for You?
Whether you're buying or selling, I'll help you find out if the loan is assumable, what the cash gap looks like, and how to write the timeline into the contract.
Elizabeth Vijan | Tackett Team, eXp Realty
Scottsdale & Phoenix Real Estate
Let's Talk · Call or text 602-885-7752
Sources: VA Circular 26-23-10: Loan assumptions · VA.gov: Funding fee and closing costs · HUD: FHA INFO 2024-30 · eCFR: 24 CFR 203.512 · 12 U.S.C. 1701j-3 (Garn-St Germain) · Arizona REALTORS: Residential Resale Purchase Contract (sample)
Disclaimer: General information, not lending or legal advice. Loan programs, fees and servicer requirements change; confirm with the loan servicer and a licensed lender. Information deemed reliable but not guaranteed. Equal Housing Opportunity.
Tackett Team, eXp Realty · Get in touch