If you could step into a home and keep the seller’s lower interest rate, would you take it? That is the appeal of assuming an existing FHA or VA loan. In a market like Phoenix, where every point on your rate changes your monthly payment, an assumption can be a smart way to buy or sell with confidence.
This guide walks you through how assumptions work for FHA and VA loans, what to verify, the steps for buyers and sellers, local recording in Maricopa County, timelines, costs, and key risks to avoid. You will leave with checklists and a clear game plan you can use right away. Let’s dive in.
What an assumption is
An assumable mortgage lets you take over the seller’s existing loan balance, interest rate, and terms instead of getting a brand-new mortgage. You must qualify with the loan’s servicer and receive approval from the insurer or agency.
- FHA loans are generally assumable when lender and HUD/FHA approval requirements are met. Mortgage Insurance Premiums stay with the loan.
- VA loans are generally assumable with VA approval. The seller’s VA entitlement may remain tied to the loan unless the VA approves a substitution of entitlement for the buyer.
For both programs, the approval flows through the current loan servicer. Local title and recording steps complete the transfer.
Why buyers and sellers consider it
- Buyers may keep a lower interest rate and reduce upfront financing costs compared with a new mortgage. You also inherit the remaining loan term and any mortgage insurance structure already in place.
- Sellers may attract more attention and potentially speed up a sale. If you are the seller, protecting yourself with a formal release of liability is essential.
Phoenix specifics to keep in mind
In the Phoenix area, title and escrow companies coordinate assumptions and handle recording with the Maricopa County Recorder. Arizona does not have a state real estate transfer tax, but you will have normal title, escrow, and recording charges. Servicer backlogs can affect timing, so plan conservatively and ask for a timeline early.
Confirm the loan is assumable
Start by verifying the basics. Ask the seller to provide:
- The promissory note and deed of trust or mortgage showing any assumption language
- Recent loan statements with the interest rate, current balance, and payment
- The loan type and any FHA case number or VA loan number
- The mortgage servicer’s contact information and account number
Then contact the loan servicer directly. Request a written statement on assumability and the servicer’s assumption packet, which will outline fees, required documents, and underwriting steps. For VA loans, confirm whether substitution of entitlement is possible. For FHA loans, the servicer will explain any appraisal or additional documentation needed under FHA policy.
Buyer steps and documents
As the buyer, expect a process similar to qualifying for a new mortgage. You will typically submit:
- A completed assumption or mortgage application
- Government ID, pay stubs, W‑2s or 1099s, tax returns, and bank statements
- Authorization for a credit report
The servicer will review your credit, income, and debt-to-income ratio. VA assumptions also look at residual income and other VA standards. Some servicers order an appraisal or inspection, especially if the sale price is higher than the loan balance or if property condition must be verified.
If the sale price is above the outstanding loan balance, you must pay the seller the difference. That equity can come from cash, a second mortgage, or seller financing. Any second lien must meet program rules and servicer approval, and the title company will document the payoff or subordination at closing.
Seller safeguards that matter
If you are the seller, do not assume you are off the hook. Protect yourself by:
- Contacting the servicer early and requesting the assumption packet and payoff statement
- Securing written confirmation that you will be released from liability upon successful assumption
- Confirming that a novation or equivalent release will be executed and recorded
- Disclosing any second liens and arranging payoffs or subordination with the title company
For VA loans, your entitlement is restored only when the VA approves a substitution of entitlement, which usually requires the buyer to be VA-eligible. Without that substitution and a formal release, your entitlement and liability can remain tied to the loan.
The closing and recording in Phoenix
Once the servicer issues approval, your closing package may include:
- An assumption agreement and any assignment or novation documents
- Title insurance endorsements and updated hazard insurance
- The deed transferring ownership
The title company coordinates lien payoffs, seller equity disbursement, and escrow adjustments. Documents are recorded with the Maricopa County Recorder. Recording provides public notice that both the ownership and the loan obligations have been transferred.
Typical timeline and fees
Every servicer operates on its own schedule, but these are common ranges:
- Initial verification and servicer contact: 1 to 2 weeks
- Buyer application and underwriting: 2 to 4 weeks
- Appraisal if required: 1 to 2 weeks
- Title work, payoffs, and scheduling: 1 to 2 weeks
- Recording and final transfer: a few days to 1 week
Plan on a total of 4 to 8 weeks. Complex files can take longer, especially if there are junior liens, property condition issues, or VA entitlement questions. Servicers may charge an assumption fee, plus credit report, title, and recording fees. Exact amounts vary by servicer and file.
Risks and pitfalls to avoid
A smooth assumption is all about clean documentation and clear approvals. Watch for these common issues:
- No formal seller release. The seller must obtain written, recorded confirmation of release or novation. Without this, the seller can remain liable if the buyer defaults.
- Unresolved second liens. Any home equity line or junior mortgage must be paid off or subordinated. These often delay or derail closings.
- Mortgage insurance and funding fees. FHA Mortgage Insurance Premiums stay with the loan. VA assumptions may involve a funding fee depending on the buyer’s eligibility and entitlement.
- Adjustable rates. Confirm whether the existing loan is fixed or adjustable and understand any future rate adjustments.
- Verbal promises. Keep all terms in the purchase contract and the servicer’s written approval. Do not rely on side agreements that are not documented.
Cost comparison tips
Before you commit, compare the total cost of the assumption to a new loan:
- Monthly payment impact. The assumed rate and remaining term drive your payment, not today’s market rate.
- Upfront costs. Weigh the servicer’s assumption fee, title and recording charges, and any funding fee or MIP changes against new-loan closing costs.
- Equity financing. If you must bridge a large gap between the sale price and loan balance, factor the cost of cash or a second lien.
- Long-term fit. A loan with 20 years left may pay down faster than a new 30-year mortgage. Decide what fits your financial plan.
Practical Phoenix workflow
Use this local, step-by-step outline to stay on track:
- Day 0 to 7: Seller provides loan documents. Buyer contacts the servicer and requests the assumption packet and fee schedule.
- Week 2 to 4: Buyer submits a full application and supporting documents. Servicer orders credit and begins underwriting.
- Week 3 to 5: Appraisal ordered if needed. Title opens escrow, runs the title search, and requests any junior lien payoffs or subordinations.
- Week 4 to 6: Servicer issues a conditional decision. Parties clear conditions and finalize equity funding.
- Week 5 to 7: Title schedules closing. Funds are wired, documents are signed, and title records with the Maricopa County Recorder.
Quick checklists you can use
Buyer checklist
- Assumption or mortgage application, ID, and credit authorization
- Recent pay stubs, W‑2s or tax returns, and bank statements
- Proof of funds or approval for any second lien to cover seller equity
- Confirmation of MIP or VA fee expectations and loan type
Seller checklist
- Note, deed of trust or mortgage, and loan statements
- Servicer assumption packet and written release or novation commitment
- Disclosure of any second liens and payoff or subordination letters
- Title instructions to record all assumption and release documents
Title and escrow checklist
- Title search and resolution of liens or judgments
- Coordination of assumption and novation documents with the servicer
- Payoff of junior liens and accurate equity disbursement on the closing statement
- Verification of hazard insurance and escrow accounts, then recording with Maricopa County
When an assumption makes sense in Phoenix
- You value a below-market rate more than customizing a new loan.
- The equity gap is manageable with cash or a reasonable second lien.
- You want to reduce upfront costs and keep the closing process focused.
- The seller is motivated to cooperate and obtain a formal release.
Get local, financing-savvy help
Assumptions touch both lending rules and local recording practices. Work with a title and escrow team that handles FHA and VA assumptions regularly. HUD-approved housing counselors and local real estate attorneys can also review assumption and novation language so you close cleanly.
If you are weighing an assumption on a home in Arcadia, Biltmore, Scottsdale, Paradise Valley, or central Phoenix, a financing-informed agent can help you compare options, coordinate with the servicer, and structure the contract so your release or approval is never left to chance.
Ready to explore an assumption or price your home to highlight an assumable loan? Get your instant home valuation with Unknown Company and let’s plan your next step together.
FAQs
How do FHA loan assumptions work in Phoenix?
- You apply through the existing servicer, who reviews your credit and income under FHA standards. If approved, title records the assumption in Maricopa County and you inherit the loan’s rate, term, and MIP structure.
What is VA entitlement substitution for assumptions?
- It is VA’s process to restore the seller’s entitlement by substituting the buyer’s entitlement. Without it, the seller’s entitlement may remain tied to the assumed loan even after closing.
How long does an FHA or VA assumption take?
- Typical timelines are 4 to 8 weeks, depending on servicer workload, whether an appraisal is needed, junior lien payoffs, and recording turnaround.
Who pays the seller’s equity on an assumption?
- If the sale price exceeds the loan balance, the buyer pays the difference at closing with cash or approved secondary financing. The title company documents the payoff or second lien.
Do FHA Mortgage Insurance Premiums change after an assumption?
- The existing MIP structure stays with the loan. You should confirm the MIP schedule and remaining duration with the servicer during the application stage.
Can a seller be released from liability on an assumed loan?
- Yes, but only with a formal, written release or novation from the servicer, and for VA loans typically in conjunction with VA approval and entitlement substitution. Always obtain written proof and ensure it is recorded.
