March 16, 2017
How do FHA loan assumptions work? There are many situations where assuming another borrower’s FHA mortgage could be beneficial to all involved. Consider this reader question we responded to recently:
“My mother in law took out an FHA loan due to illness preventing her from working. The lender allowed myself and fiance to make payments on her behalf based on our income in order for her to keep the house. Is it possible for her to sign the house over to us since her health is declining?”
This is a circumstance where it would definitely help to know about FHA loan assumptions and how they work. The rules for this procedure is found in HUD 4000.1, which starts off with a definition. “Assumption refers to the transfer of an existing mortgage obligation from an existing Borrower to the assuming Borrower.”
FHA loan assumptions for most mortgages today require the lender’s participation. The lender may require the usual types of credit checks and there is, like most other FHA single-family mortgages, an occupancy requirement. From 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. If the original Mortgage was closed prior to December 15, 1989, the assuming Borrower may assume the Mortgage as a Principal Residence, HUD-approved Secondary Residence or Investment Property.”
FHA loan assumptions allow 100% of the remaining principal balance of the original loan. That’s unlike new purchase loans where a minimum required investment must be made.
According to the FHA loan rule book, “The assuming Borrower is not required to make a cash investment in the Property. The assuming Borrower may assume 100% of the outstanding principal balance of the Mortgage, subject to the restrictions on LTV ratio for Investment Properties and HUD-approved Secondary Residences.”
Lender standards may apply and state law may also play a part in how a loan assumption may be handled, depending on circumstances. FHA loan assumptions may require the assuming borrower to pay a fee.
According to HUD 4000.1, “Mortgagees may charge the assuming Borrower a processing fee that is reasonable and customary not to exceed a maximum of $900. The Mortgagee may charge the assuming Borrower other costs” in accordance with FHA loan rules found under a section titled “Allowable Charges Separate from Assumption Processing Fees”.
Speak to the loan officer in charge of the mortgage loan you wish to assume to learn more about how to get started learning more about FHA loan assumptions, their fees and requirements.
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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