What Makes a Loan Assumable (or not)

Question

I know basically nothing about what makes a loan assumable or not.

I was told by someone who would have an interest in telling me a specific loan was not assumable that Fannie/Freddie loans are not assumable (as a blanket statement).

Is this true or is the guy blowing smoke?

J Scott · Answer

As Loc said, check the mortgage documents to determine if the loan is assumable or not.  Also, as Loc pointed out, most FNMA and FMAC loans have DOSC that make them non-assumable.  That said, nearly all FHA loans are assumable.

Here is more about FNMA loans:

https://www.efanniemae.com/sf/guides/ssg/relatedservicinginfo/pdf/transowner.pdf

Loc R. · Answer

Normally there is a clause written in the note as to whether or not a loan is assumable.  Most of the time it falls under the Due on Sale Clause.

Fannie and Freddie have had pretty strong DOSC language since the early 2000s if I'm not mistaken.

Bryan Hancock · Answer

There is some excellent commentary on the lineage of the due-on-sale clause in JTR's article here:

Due-On-Sale

Assumable loans are rare...especially ones that don't involve the lender approving the "assumption."  Allowing fully-assumable loans increases the duration of the money for the lender and thus their interest rate risk.

Ophelia Nicholson · Answer

Fnma/Freddie loans are not assumable and usually it says it in the documents that the loan is not assumable. FHA/VA loans made I think in the 1980's are assumable by anyone without permission from the lender although fat chance of finding that. After the 1980's I believe you need the lender to approve the assumption.

VA loans are assumable however if the buyer is not a veteran the seller cannot get back thier eligibilty to use on another loan.

Dave O · Answer

Hi Jake,

I am with Ophelia on this.  I believe it was about 1989 when lenders inserted the due on sale clause.  Up until then, there were assumption opportunities.

With that said, there are other ways of skirting around this.  I have been successful with doing an AITD (All-Inclusive-Trust-Deed).  Granted, there are risks and if the bank finds out, they can call the loan in.  Mine worked (not without some tweaks here and there) until I found my own financing and paid off the original loan.

What Makes a Loan Assumable (or not)

Most Popular Reply