By Frederick Blum, Broker/Owner of Blum Realty Group
On a VA assumption, the funding fee is generally 0.5% of the unpaid loan balance unless the buyer is exempt. That fee sits alongside the servicer’s processing charge, the usual title and escrow costs, and the cash you pay the seller for their equity, which is separate from closing costs. FHA assumptions carry a different set of charges, so the total depends on the loan, the servicer and the deal.
Closing costs, prepaid items, any extra financing and the cash you want left afterward belong in the plan before the offer. As your broker, I want the purchase built around a complete estimate, not a low rate followed by expensive surprises in escrow.
Separate the purchase into four cash categories
The price gap: the agreed price minus the current balance of the mortgage you are assuming. That amount has to be covered with cash and any additional financing that is permitted and approved. It is not a fee the servicer charges.
Transaction charges: assumption processing, any program fees, title and escrow work, recording, inspections, association documents or transfer charges, and the permitted costs of any separate loan. Get an itemized estimate and confirm who pays each line under the contract and the program rules.
Prepaid and prorated costs of owning: insurance, taxes, interest or other adjustments, and the money required to fund an escrow account. Some of these are money set aside for future bills, not a charge for a service. They still change what you need at closing.
Money kept after closing: moving costs, the first repairs, upcoming assessments and emergency savings. A purchase can close on paper and still leave you too little room for ordinary life as a homeowner. Your offer should reflect the reserves you intend to keep.
Ask how your deposit and anything you have already paid will show up in the final calculation. An earnest-money deposit is generally part of your purchase funds, not an extra expense to count a second time. Our second-loan guide covers financing part of the gap.
The advertised assumption fee is not the whole closing bill
FHA assumptions
The current HUD Handbook 4000.1 permits a reasonable and customary assumption processing fee of up to $1,800. Its servicing guidance also covers the actual cost of third-party charges such as credit reports and employment verification. Get the processor’s itemized list instead of assuming the maximum is a flat charge on every transaction.
Also ask about the existing loan’s mortgage-insurance charge and any subordinate lien or partial claim that has to be dealt with when ownership changes. A mortgage statement alone may not show every amount that affects the seller’s net proceeds or the closing plan. Escrow, title and the servicer should sort those obligations out early.
For how a HUD partial claim is paid off and released at closing, see FHA assumptions with a partial claim.
VA assumptions
VA’s assumption guidance sets a funding fee of 0.5% of the assumed balance unless the person assuming the loan qualifies for an exemption. On a $500,000 assumed balance, that is $2,500. The assumption funding fee is collected at closing; do not plan on adding it to the existing mortgage balance as if this were a new purchase loan.
Which VA processing-fee limit applies?
Ask the assumption department whether the loan holder or its authorized servicer will approve the assumption under its own automatic authority, or whether neither has that authority and the application has to go to VA. That difference affects the base processing fee.
VA’s assumption locality circular sets a $300 base limit for holders with automatic authority and a $250 limit for holders without it. Any state limits and the permitted credit-report charge also need to be checked. Ask the processor to show the base fee and the credit-report charge as separate lines and to name the rule behind each amount.
The locality charge is another line. VA’s regional schedule places California in the West region and permits a $463 assumption locality variance when the assumption closes. It comes on top of the base processing fee and the other allowed charges.
| Fee line | Automatic-authority example | No-automatic-authority example |
|---|---|---|
| Base processing fee at the stated limit | $300 | $250 |
| California locality variance, if charged at closing | $463 | $463 |
| These two lines together | $763 | $713 |
This table shows only those two fee lines, assuming no lower limit applies. It leaves out the funding fee discussed above, any permitted credit-report charge, the other allowable transaction charges and the prepaid costs of owning. It is not a complete quote, and it does not mean the servicer has to charge every permitted amount.
For your estimate, ask for each amount itemized, who receives it, when it is due and what gets refunded if the assumption does not close. If a charge shows up as “processing,” “assumption” or “locality” on different documents, have the processor explain whether those are separate charges or the same one under different names. A fee’s label alone does not settle whether it is allowed.
I check that written itemization against escrow’s estimate and any second lender’s estimate before relying on a cash-to-close number. Count each line once, note who pays it, and replace the estimates when the written instructions arrive.