What is Loan Assumption?
Loan assumption is a process where a buyer takes over, or ‘assumes,’ the seller’s existing mortgage loan when purchasing their home. Instead of getting a new loan, the buyer steps into the seller's shoes and continues making the existing loan’s payments under the same terms.
While this article focuses on USDA loans, it's worth noting that other types of loans, including FHA and VA, are also assumable. Conventional loans, on the other hand, generally are not.
Are USDA Loans Assumable?
Yes, USDA loans are assumable under certain conditions. However, loan assumption is typically handled by the current loan servicer and must be approved by both the servicer and the U.S. Department of Agriculture (USDA).
Note: Neighbors Bank does not currently offer assumption for any loan products.
Why Assume a USDA Loan?
When you assume a loan, you take over the seller’s existing loan terms, which can be a major win if their interest rate is lower than what’s currently available. You can also save on upfront costs and bypass some of the fees required with a brand-new USDA mortgage.
Pros of USDA Loan Assumption
Buyer Benefits
| Benefit | Why It Matters |
|---|---|
| Lower Interest Rate | This is typically the biggest benefit of loan assumption. Buyers may secure a rate below current market levels, potentially saving thousands over the life of the loan. |
| Closing Cost Savings | Buyers skip the upfront USDA guarantee fee (typically 1%) because the seller already paid it. |
Seller Benefits
| Benefit | Why It Matters |
|---|---|
| Expanded Buyer Pool | A low-rate assumable USDA loan can attract more buyers—especially when market rates are high. |
| Competitive Advantage | Favorable loan terms may help sellers justify a higher asking price or make their home stand out. |
| Retained Equity | Sellers keep their built-up equity while transferring the debt to the buyer, who covers any difference between the loan balance and the sales price. |
Cons of USDA Loan Assumption
Despite the many benefits that assuming a USDA loan offers, there are a couple of drawbacks.
Buyer Cons
| Benefit | Why It Matters |
|---|---|
| Cash Required Upfront | If the home has appreciated, the buyer must cover the gap between the loan balance and the purchase price. For example, if the seller owes $250,000 on a home now worth $300,000, the buyer is responsible for the $50,000 difference—usually paid in cash or gift funds since few lenders finance this gap. |
| Limited Negotiation Power | Buyers must accept the original loan terms and keep the same loan servicer, leaving little room to negotiate rates or conditions. |
| Limited Availability | USDA loans are assumable, but finding a property where assumption is both permitted and practical can be challenging. |
Seller Cons
| Benefit | Why It Matters |
|---|---|
| Servicer Approval Required | The assumption can’t move forward unless the loan servicer signs off, which can add time and administrative steps to the sale. |
| Potential Delays | Assumption reviews can take longer than traditional financing, which may slow down the closing timeline. |
How to Assume a USDA Loan
Assuming a loan is subject to the lender's approval.
When trying to assume a USDA loan, the buyer must meet USDA eligibility requirements, and the loan must be in good standing. The U.S. Department of Agriculture (USDA) must also approve the assumption, and the assuming buyer must be an owner-occupant, meaning they intend to live in the home as their primary residence.
Assuming a USDA loan differs from a typical USDA mortgage purchase in several ways. Below are the typical steps, but keep in mind that not all loans are eligible, and not all servicers allow it.
Step 1: Determine Eligibility
To assume a USDA loan, you must confirm that you qualify for the loan program. Eligibility requirements include demonstrating creditworthiness, income, and employment stability, and meeting the USDA's debt-to-income ratio guidelines.
Most USDA lenders typically cap the allowable DTI ratio at 41% and require a minimum credit score of 620+.
Step 2: Find a Property
If you want to assume a USDA loan, the first step is getting under contract on a home where the seller already has one. Even if a home is no longer in a USDA-eligible area, you can still assume the loan since it’s already backed by USDA. From there, you’ll work with the seller’s loan servicer to see if you qualify for the assumption.
Neighborly Advice
Keep in mind that the process can take time, so it may not be the best option if you need a quick, competitive offer. You’ll also need to cover any difference between the seller’s loan balance and the purchase price, either with extra cash at closing or, in some cases, a small secondary loan.
Step 3: Contact the Loan Servicer
Reach out to the loan servicer or lender currently servicing the USDA loan on the property. Obtain information about the loan and express your interest in assuming it. The loan servicer will guide you through the process and provide you with the necessary paperwork.
Step 4: Gather Documentation
Prepare the required documents for assuming the USDA loan. These typically include financial statements, employment verification, tax returns, bank statements and any other documentation requested by the loan servicer to assess your creditworthiness.
Step 5: Submit an Application
Complete the assumption application provided by the loan servicer. This form will require personal and financial information about yourself and any co-borrowers. Ensure that all information is accurate and complete before submitting the application.
Step 6: Await Approval
Allow the loan servicer to review your application. They will assess credit requirements, income stability and other factors to determine whether you qualify to assume the USDA loan. This process may take time, so be patient during the review period.
Step 7: Complete Closing
Once the closing is complete, the loan will be transferred to your name, and you will assume responsibility for the remaining balance.
Tips to Find USDA Assumable Loans
Compared to other loan products, USDA loans are relatively rare in the real estate market. You may need to contact multiple agents or explore off-market options to find a property with an assumable USDA loan. Here are some tips to find USDA assumable loans:
1. Look for Listings That Mention Assumable Loans
Some sellers or agents highlight assumable financing as a selling point, especially when the current interest rate is much lower than market rates.
Search for phrases like:
“USDA assumable”
“Assumable mortgage”
“Low-rate assumable loan”
On real estate listing sites such as Realtor or Zillow. You can also check local real estate ads.
2. Search Online Forums and Local Groups
Occasionally, sellers post assumable opportunities directly. Here are some places to check:
Facebook Marketplace
Facebook Groups (located in the area you’re looking to purchase in)
Regional real estate forums
Reddit
However, be cautious and always verify directly with the servicer. Never reveal your private information online.
3. Work With a Real Estate Agent Familiar with USDA Loan Assumptions
Most assumable loan opportunities appear in the MLS but may only be visible to agents.
You can ask your agent to search for listings with USDA financing, to filter by notes or remarks containing “assumable,” and to reach out to sellers or listing agents directly when a home is USDA-eligible.
Agents familiar with USDA guidelines are more likely to know where these deals pop up, and they can cross-check a property’s eligibility by plugging the address into our USDA property eligibility map.
4. Contact Sellers Directly
Some sellers are unaware that their loan is assumable.
If you’re interested in a home in a USDA-eligible area, you or your agent can ask the seller:
Whether they have a USDA loan
Whether they’re open to an assumption
What their current interest rate is
This strategy works especially well in higher-rate markets.
Final Thoughts
A USDA loan assumption can be a valuable opportunity for the right buyer, particularly in a high-interest-rate environment where taking over an existing loan may offer meaningful savings. However, assumptions aren’t guaranteed and often involve additional steps, servicer approval, and upfront cash considerations. By understanding how USDA loan assumptions work, buyers and sellers can better decide whether this path is worth exploring as part of their home purchase or sale strategy.
Emily Kittle is an experienced underwriter with a strong background in risk assessment, training, and loan decision-making. She excels at solving complex mortgage challenges and guiding loans to closing using creativity and critical thinking.