October 25, 2016
A reader got in touch with us recently via our comments section, with a question about FHA loan assumptions. She asked, “Are FHA refinance mortgages assumable?”
This is an interesting take on the loan assumption question, since many of our prior questions in the comments section are asking if FHA loan assumptions are possible in a general sense. The specific query about refinanced loans is one we haven’t seen in recent months, but FHA loan rules in HUD 4000.1 are quite specific:
“All FHA-insured Mortgages are assumable.” That is found on page 691 of HUD 4000.1, which also adds, “The Mortgagee must not impose, agree to, or enforce legal restrictions on conveyances or assumptions after closing except when:
-specifically permitted by HUD regulations; or
-the restriction had been specified in a junior lien granted to the Mortgagee after
settlement.
The Mortgagee must review the mortgage documents to determine what restrictions have been placed on the Mortgage.”
What IS an FHA loan assumption? It’s the process where a home owner with an FHA mortgage basically agrees to sign over the property and the existing mortgage to another person.
In most modern FHA loan assumptions, the lender’s participation is required, so the new borrower and the current owner of the home will have to work with the loan officer to see what is possible and what might be required.
There may be fees associated with an FHA loan assumption, so that is another area the lender will need to address with all parties involved. FHA loan rules do not set dollar amounts for these fees, they are set by the lender.
Additional lender standards may also apply in addition to FHA loan rules. The assuming party may be required to pass a credit check, for example. State law and city ordinances may also affect transactions like these, so it’s important to have a conversation with your lender to see what issues may be associated with an assumption.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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