Are FHA Loans Assumable Mortgages?

Whether youre a first-time homebuyer, moving to a new home, or want to refinance your existing conventional or FHA mortgage, the FHA loan program will let you purchase a home with a low down payment and flexible guidelines.580 Credit Score- and only -3.5% Down RELATED ARTICLES

FHA loan limits were established to define how much you can borrow for a HUD-backed mortgage. Each state has different limits, so be sure to look up your state to understand what is available for your FHA home loan.

For , the FHA floor was set at $498,257 for single-family home loans. This minimum lending amount covers most U.S. counties. The FHA ceiling represents the maximum loan amount and is illustrated in the table below.

Also for 2024, the FHA ceiling was set at $1,149,825 for single-family home loans. This represents the highest amount that a borrower can get through the FHA loan program. It applies to high cost areas in the United States and is illustrated in the table below.

Paying the upfront costs of buying a new home can be challenging. To help overcome this hurdle, many local and state agencies offer down payment assistance in the form of grants or second mortgages.

If you’re considering buying a home with an FHA mortgage, you may be wondering – can FHA loans be assumed by a new buyer if I want to sell the house later on? The answer is yes, FHA-insured mortgages are assumable under certain conditions. However, there are some limitations and creditworthiness requirements to be aware of.

Frequency of Entities:

FHA-insured mortgages: 4
FHA loans: 3
FHA mortgage: 2
FHA loan: 2

What Is a Mortgage Assumption?

A mortgage assumption allows a new homebuyer to take over the seller’s existing mortgage loan instead of applying for a new loan. The new owner assumes responsibility for making the remaining monthly payments and paying the loan off per the original terms.

Assuming a mortgage can benefit both the seller and buyer by avoiding fees and paperwork associated with a new loan, The seller may also be able to sell the home more quickly without requiring traditional bank financing

Are All FHA Loans Freely Assumable?

In the past, FHA loans contained no restrictions on assumability. However, FHA policy has evolved over the years. Here is a quick overview of how assumeability requirements have changed:

FHA loans originated before December 1, 1986 are freely assumable by qualified buyers. No credit check is required.
FHA loans originated between 1986 and 1989 may state assumeability restrictions, but these are no longer enforced due to later Congressional action. These loans can be assumed without credit approval.
FHA loans originated on or after December 15, 1989 require the lender to conduct a creditworthiness review of the assumee before approving a mortgage assumption.

Credit Check Required for Post-1989 FHA Loans

For any FHA mortgage originated on or after 12/15/1989, the lender must assess the creditworthiness of the new owner seeking to assume the loan.

This credit check is the same review the lender would conduct when approving a new FHA mortgage application. Factors include:

FICO credit scores
Debt-to-income ratios
Employment history and income
Assets and reserves
Housing payment history

The assumee must meet standard FHA underwriting requirements for the lender to approve assuming the existing FHA mortgage.

Processing Timeline for Assumption Evaluation

When evaluating a potential assumee, the FHA lender is required to finish the creditworthiness review within 45 days from receipt of a complete assumption request package.

This includes Form HUD 92210 or a similar document signed by the assumee with all required financial details provided.

The lender must inform the applicants promptly if any additional documentation is needed to continue processing the assumption request.

Using a Co-Signer When Assuming an FHA Loan

If the assumee has somewhat limited credit or would not quite qualify on their own, they may be able to assume the FHA loan with a co-signer who has stronger credit.

The co-signer will also become fully responsible for the mortgage, so this option should be discussed carefully between the co-borrowers. A co-signer can improve the chances of assumption approval.

Assumption Denial and Appeal Options

If the lender determines the assumee does not meet FHA credit requirements, they will issue a rejection in writing explaining the reason for denial.

Applicants who are denied have two options:

Provide additional documentation to the lender to re-evaluate the decision
Submit a formal appeal to HUD if they believe the lender erred in following program guidelines

Before starting the appeals process, reach out to the lender first to verify the reason for denial and see if you can resolve any issues.

Release of Liability for FHA Sellers

Here are some key things to know about the selling homeowner’s liability when assuming an FHA loan:

For pre-1986 FHA loans, the lender must grant a release of liability to the seller once the assumee is approved. The seller is no longer responsible for repayment.
For loans between 1986-1989, the lender must automatically process a release of liability for the seller when the new owner assumes the mortgage.
For post-1989 FHA loans, the lender will typically handle releasing the seller from liability as part of approving the assumption.

Always verify with the lender that the proper release forms are completed once the assumption is finalized. This formally documents you are no longer obligated on the FHA mortgage.

Assumption Costs and Fees

When assuming an FHA loan, the new borrower can expect to pay:

A loan assumption fee – usually around 0.5% of the loan balance
Appraisal fees if an appraisal is required
Credit report fee
Other customary closing costs much like a purchase transaction

Seller credits cannot be used to cover the assumee’s costs, but the seller can pay closing fees per program rules.

The Takeaway

In most cases, existing FHA loans can be assumed by qualified buyers when homes are sold. This can make it easier to sell the property. But keep in mind:

Older FHA loans have no restrictions while newer ones require full credit/underwriting approval
Costs similar to a purchase apply so assumees should budget accordingly
The seller must be released from liability by the lender once approved

Always consult a lender at the start of the assumption process to understand the exact requirements for a smooth transaction.

are fha loans assumable mortgages

FHA Loan Programs for 2024

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Single	Duplex	Tri-plex	Four-plex
FHA Limits (low cost areas)
$498,257	$637,950	$771,125	$958,350

Single	Duplex	Tri-plex	Four-plex
FHA Limits (high cost areas)
$1,149,825	$1,472,250	$1,779,525	$2,211,600

Paying the upfront costs of buying a new home can be challenging. To help overcome this hurdle, many local and state agencies offer down payment assistance in the form of grants or second mortgages.

FHA Assumable Loans

FAQ

How hard is it to assume an FHA loan?

An assumable FHA mortgage works in the same way, but a buyer will need to meet certain criteria before taking over an existing FHA mortgage. Among these criteria, a buyer will need a credit score of at least 580 and a debt-to-income ratio of 43% or less.

Does FHA allow a new buyer to assume an existing mortgage?

Did you know that FHA loans (these loans are backed by the federal government) are assumable? An assumable mortgage lets the buyer take over the seller’s interest rate, current payment amount, repayment period, and any other applicable terms of the mortgage.

Are current FHA loans assumable?

Most government-backed loans, including all FHA loans, are generally assumable, as long as the lender approves the sale. However, additional rules apply: → For loans originated on or after Dec. 15, 1989: If the buyer is creditworthy, the lender must approve a sale by assumption and transfer responsibility to the buyer.

Can you take over someone’s FHA loan?

You can only assume a government-backed loan, such as an FHA or VA loan. Most conventional mortgages aren’t assumable. Some borrowers seek out assumable mortgages in order to get a better interest rate than what’s on the market today. An assumable loan can be tough to find, however.

Are all mortgage types assumable?

Yes, FHA loans are assumable. This is a significant feature that sets them apart from many other types of mortgages. However, it’s important to note that not all mortgage types are assumable, and the specifics, including eligibility and process, vary depending on the type of loan and the lender’s requirements.

Is an FHA loan free assumable?

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 it means that the FHA loan that meets that standard is “freely assumable”.

How does an assumable mortgage work?

An assumable mortgage is a home loan that can be transferred from the original borrower to the subsequent homeowner with the same interest rate. Having an assumable loan can give a home seller a marketing edge. This is how an assumable mortgage works.

Is an FHA assumable mortgage a good idea?

An FHA assumable mortgage may not be a good idea for a buyer if they cannot obtain a written release of mortgage liability from the seller’s lender. An FHA assumable loan can be a bad idea for a seller if they don’t get a written release of mortgage liability from the lender.