An assumable mortgage is one a buyer can take over from the seller, keeping the existing rate, remaining balance and remaining term. FHA, VA and USDA loans can be assumed with the servicer's approval, and the buyer has to qualify under that program's rules. Most conventional loans can't, because their due-on-sale clause lets the lender call the loan when the home sells. The catch is the gap: the buyer has to cover the difference between the price and the loan balance with cash or approved second financing.
Here's how each program handles it, what it costs, and how to tell whether it actually beats a new loan.
The buyer steps into the seller's existing note. The rate, balance, remaining term and payment schedule stay as they are. The buyer takes over the payments, and the seller, if formally released, is no longer responsible. In a market where new loan rates are higher than the seller's, inheriting the old rate on part of the purchase can be valuable. For a seller, an assumable loan can be a selling point.
An assumption is an application with the servicer, the company that collects the payments. It has its own underwriting, timeline and fees, and the servicer may not be the lender that originally made the loan.
HUD's rules are in Handbook 4000.1, section II.A.8.n, Assumptions (dated 08/19/2024). The key points:
When a home passes by inheritance, or in a divorce where the spouse keeping the home stays in it, the servicer can process the assumption without a credit review if the person assuming shows at least six months of payments before applying (HUD 4000.1 II.A.8.n.v(A)).
On VA loans committed on or after March 1, 1988, the loan isn't assumable without approval from VA or its authorized agent, and the loan documents say so (38 U.S.C. 3714(d) and (f)). The holder approves the assumption if the loan is current and the buyer agrees to assume the loan and qualifies on credit as if the buyer were an eligible veteran (38 U.S.C. 3714(a)(1)). The buyer doesn't have to be a veteran. If the holder declines, the seller can appeal to VA (38 U.S.C. 3714(a)(3) and (4)).
When those conditions are met and the seller notified the holder in writing before the sale, the seller is relieved of further liability to VA on the loan (38 U.S.C. 3714(a)(1)).
Costs on a VA assumption:
This is the part veterans selling a home need to understand. The seller's VA entitlement stays tied to the assumed loan unless the buyer is an eligible veteran who substitutes their own entitlement. If a non-veteran assumes, the seller's entitlement can stay committed until that loan is paid off, which limits what the seller can use on a future VA loan. Texas agents use a separate TREC addendum for release of liability and restoration of the seller's VA entitlement.
USDA guaranteed loans can be assumed only with USDA's approval, and the rules are stricter than many people expect (7 CFR 3555.256(b)):
If a USDA home is transferred with the lender's knowledge and nobody assumes the debt, USDA can void the guarantee (7 CFR 3555.256(a)).
Most conventional loans carry a due-on-sale clause, so they aren't assumable by a new buyer. Some adjustable-rate notes include assumption terms, but they're rare, and the note controls.
Federal law limits when a lender can enforce a due-on-sale clause on a home with fewer than five units (12 U.S.C. 1701j-3(d)). Protected transfers include a transfer to a relative after the borrower's death, a transfer where the borrower's spouse or children become owners, a transfer under a divorce decree or legal separation where the spouse becomes an owner, and a transfer into a living trust where the borrower remains a beneficiary. Those protect family transfers. They don't make a sale to an unrelated buyer assumable.
So-called subject-to deals, where a buyer takes over payments without the servicer's approval and the loan stays in the seller's name, are a different arrangement with real risk, including the due-on-sale clause and the seller's continued liability. That's a conversation for a real estate attorney.
The price is usually higher than the remaining balance, and the buyer has to cover that difference, which is the seller's equity, plus closing costs. Options:
The blended cost of the assumed first and any new second is the number to compare against a new loan for the full amount.
In Texas, the contract usually includes the TREC Loan Assumption Addendum (form 41-3, dated 11-07-2022). It sets a deadline for the buyer's credit documents, lets the seller reject the buyer's credit within a set window, adjusts the cash or price if the balance at closing differs from the contract, and lets the buyer terminate if the noteholder requires an assumption fee above an agreed amount or other changes to the loan. It also provides that unless the seller is released from liability on the assumed note, a vendor's lien and deed of trust securing assumption will be required, and it points sellers worried about future liability to TREC's Release of Liability addendum.
At closing, the title company handles the deed, the assumption documents and the seller's equity payment. The existing escrow account usually transfers, and the buyer typically reimburses the seller for that balance. The buyer puts homeowners insurance in their name, and taxes are prorated like any Texas sale. If the seller had a homestead, over-65 or disabled veteran exemption, the buyer's tax bill can rise once those come off. See how Texas property taxes work.
Timelines are set by the servicer, not your contract, and can run longer than a new loan.
This example is made up to show how the numbers interact.
A seller in Benbrook has a VA loan from several years ago with a balance of $240,000 at a rate well under today's. The agreed price is $340,000, so the gap is $100,000 plus closing costs. Buyer A is a non-veteran with $40,000 saved. She'd need a second lien for the rest, and the seller's entitlement would stay tied to the loan, which matters because he plans to buy again with VA. Buyer B is an eligible veteran with more cash who agrees to substitute her entitlement. The seller accepts Buyer B, both sign the TREC assumption addendum and the release addendum, and the servicer processes the assumption. Buyer B pays the 0.50% funding fee unless exempt and compares the assumed loan's remaining term and her cash outlay against a new VA loan before committing.
Lay these side by side:
The assumed rate looks better on its own. Whether it wins depends on the gap, how it's financed and the remaining term. A loan with many years already paid down has a shorter term left, which means a higher principal payment on that balance than spreading it over a new full term.
Looking at a home with an assumable FHA, VA or USDA loan? I'll put the assumption and a new loan side by side, including the gap and how to finance it, so you know which one actually costs less. Book a call, or start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026