July 31, 2015
There are people on both sides of a potential loan assumption transaction–home owner and house hunter–who want to know if FHA home loans are assumable. Is it possible for a person who has purchased a home with an FHA mortgage loan to sign that loan over to someone else and allow them to assume responsibility for the loan and take ownership of the home?
FHA loan rules say that loan assumptions are permitted for FHA single family home loans.
Depending on when the loan was issued, there may be different requirements. For example, “If the loan application was signed by the borrower before December 1, 1986, the FHA-insured mortgage generally contains no restrictions on assumability.” That information is found in HUD 4155.2 Chapter Three and basically allows the loan assumption without a credit check.
However, all FHA loans issued after December 1, 1986 are required to have the lender’s participation. An FHA loan assumption requires a credit check to insure the borrower is credit worthy and the original borrower will have to work with the lender in order to complete the loan assumption. Specifically, Chapter Three of HUD 4155.2 says, “For a mortgage where the application was signed on or after December 1, 1986, the loan may be assumable depending on a creditworthiness review of the assumptor(s).”
The word “may” is in italics–the FHA’s emphasis, not ours–which implies that a loan assumption should not be taken for granted. Taking over the loan would still require the lender to make sure the new owner of the home is an acceptable credit risk. That means that the person assuming the loan should prepare much in the same way any other home buyer would.
Checking FICO scores, avoiding new lines of credit leading up to the new loan, reducing debt-to-income ratios, and preparing for any expenses associated with the loan assumption are key. The person assuming the loan should consider getting a home inspection the same way a borrower would who needs a new-purchase FHA mortgage. Being an informed borrower is important, and no less important when assuming an FHA loan from someone else.
Do you have questions about FHA loans or refinance loans? Ask us in the comments section.
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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