What is Loan Assumption?
Loan assumption occurs when the buyer of a property takes on, or ‘assumes’ the existing mortgage on the property. While most conventional home loans are not assumable, FHA 203(b) loans are— and that’s a big benefit for borrowers.
Because 203b loans are assumable, it can often be much easier to sell a home, as the new buyer will not have to get a new loan. On the other hand, loan assumption may not always help a seller with an FHA loan, since the new buyer will typically have to pay for the rest of the property in cash. For example, if a seller is selling a property for $500,000, and they only have $100,000 left on their FHA loan, the buyer would need to come up with $400,000 in cash if they wanted to assume that loan.
However, one benefit of FHA loan assumption is the fact that the borrower assuming the loan does not have to use the house as a primary residence. Instead, they are permitted to use the home as a HUD-approved second home or even as an investment property.