FHA Loans: Are They Assumable?
September 23, 2023
In September 2023, ABC News ran an article noting that some borrowers can get into a home loan with mortgage rates as low as 3%. How is this possible in an era where mortgage loan rates are at 7%?
Here’s the catch. It’s not a loan you can simply walk into a bank and apply for or log into a participating FHA lender set online to get.
Home Loan Assumptions
What the ABC News article is talking about is the process of loan assumption, which is where the owner of a home signs over their loan and the title of the property over to someone else.
The original mortgage loan interest rate continues after a loan assumption because the new homeowner is simply taking over the original loan, not refinancing it.
According to the FHA Single-Family Lender’s Handbook, an FHA loan assumption is the “transfer of an existing mortgage obligation from an existing Borrower to the assuming Borrower.”
Are FHA Loans Assumable?
HUD.gov states clearly that FHA loans are assumable, which makes this an instantly attractive option for some. But what’s the catch?
If you want to get into a home loan this way, you need to find a homeowner with an assumable mortgage willing to transfer the loan to you.
That might not sound difficult to some. It sounds impossible to others. But finding a homeowner willing to let you assume the loan is only half the battle.
The Date of the Original FHA Home Loan Matters
The lender’s participation is typically required, and you can’t do an FHA loan assumption without the lender. Depending on when the original loan was closed, there are additional considerations.
According to HUD 4000.1, “If the original Mortgage was closed on or after December 15, 1989, the assuming Borrower must intend to occupy the Property as a Principal Residence or HUD-approved Secondary Residence.”
In cases where the original mortgage was closed before December 15, 1989, “the assuming Borrower may assume the Mortgage as a Principal Residence, HUD-approved Secondary Residence or Investment Property.”
Restrictions on Loan Assumptions
There are some restrictions on the loan-to-value ratio for FHA loan assumptions. The maximum Loan-to-Value for an Investment Property assumption (see above) is 75%.” FHA loan rules add, “Either the original appraised value or new Property Value may be used to determine compliance with the 75% LTV limitation.” Second homes may require an LTV of 85%.
Loan assumptions have one perk in that there is no FHA-required down payment. Lender requirements may apply, and state laws may affect how a loan assumption transaction is handled in your housing market.
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Here’s the catch. It’s not a loan you can simply walk into a bank and apply for or log into a participating FHA lender set online to get.
Home Loan Assumptions
What the ABC News article is talking about is the process of loan assumption, which is where the owner of a home signs over their loan and the title of the property over to someone else.
The original mortgage loan interest rate continues after a loan assumption because the new homeowner is simply taking over the original loan, not refinancing it.
According to the FHA Single-Family Lender’s Handbook, an FHA loan assumption is the “transfer of an existing mortgage obligation from an existing Borrower to the assuming Borrower.”
Are FHA Loans Assumable?
HUD.gov states clearly that FHA loans are assumable, which makes this an instantly attractive option for some. But what’s the catch?
If you want to get into a home loan this way, you need to find a homeowner with an assumable mortgage willing to transfer the loan to you.
That might not sound difficult to some. It sounds impossible to others. But finding a homeowner willing to let you assume the loan is only half the battle.
The Date of the Original FHA Home Loan Matters
The lender’s participation is typically required, and you can’t do an FHA loan assumption without the lender. Depending on when the original loan was closed, there are additional considerations.
According to HUD 4000.1, “If the original Mortgage was closed on or after December 15, 1989, the assuming Borrower must intend to occupy the Property as a Principal Residence or HUD-approved Secondary Residence.”
In cases where the original mortgage was closed before December 15, 1989, “the assuming Borrower may assume the Mortgage as a Principal Residence, HUD-approved Secondary Residence or Investment Property.”
Restrictions on Loan Assumptions
There are some restrictions on the loan-to-value ratio for FHA loan assumptions. The maximum Loan-to-Value for an Investment Property assumption (see above) is 75%.” FHA loan rules add, “Either the original appraised value or new Property Value may be used to determine compliance with the 75% LTV limitation.” Second homes may require an LTV of 85%.
Loan assumptions have one perk in that there is no FHA-required down payment. Lender requirements may apply, and state laws may affect how a loan assumption transaction is handled in your housing market.
------------------------------
RELATED VIDEOS:
Homebuyers Benefit From the Work Done by Fannie Mae
HUD 4000.1 is Sometimes Called the FHA Handbook
Credit History Is Presented as Your FICO Score
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