February 4, 2016
In a recent blog post we discussed the rules for assuming an FHA mortgage. FHA home loans are assumable in most cases with the participation and approval of the lender. HUD 4000.1 spells out the rules for all FHA single family home loan assumptions including outlining when a down payment may be required and when a credit check is necessary.
For borrowers who assume an FHA mortgage with the intent of using the property as the primary residence, no down payment is usually required. Regardless of whether a down payment is required or not, one important question about loan assumptions for the “seller” of the home remains–is the original owner of the property released from liability once the FHA loan is assumed by the “buyer”?
According to HUD 4000.1, “The Mortgagee must prepare form HUD 92210.1, Approval of Purchaser and Release of Seller, thereby releasing the original owner when they sell by assumption to the assuming Borrower who executes an agreement to assume the Mortgage and to pay the debt.”
When it comes to the buyer’s financial qualifications, is a credit check required by FHA loan rules? HUD 4000.1 states:
“The Mortgagee may process an assumption without credit review of the assuming Borrower if the transfer is by devise or descent, or other circumstances in which the transfer cannot legally lead to exercise of the due-on-sale, such as a divorce in which the party remaining on title retains occupancy, and the assuming Borrower can demonstrate that they have made the Mortgage Payments for a minimum of six months prior to the date of application of the assumption.”
So the credit check issue is situational, and the lender may require one regardless depending on state law, and the regulations of that financial institution.
All loan transactions have associated costs, and FHA loan assumptions are no exception. FHA loan rules state that the lender may charge a fee for the loan assumption, as described below:
“Mortgagees may charge the assuming Borrower a maximum fee of $500 for the processing of an assumption in addition to the actual costs incurred for credit reports and other expenses.”
Discuss closing costs or other expenses connected with an FHA loan assumption with the lender to see what charges may apply in your transaction.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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