Yesterday we discussed FHA loan assumption policies—FHA loans are assumable, provided the lender can determine that the proposed new owner is able to financially qualify for the mortgage. According to HUD 4155.1 Chapter Seven, the following applies to all FHA home loans subject to laws affecting loans closed in 1989 and after:
“Under the HUD Reform Act of 1989, mortgages closed on or after December 15, 1989 require credit qualification of those borrowers wishing to assume the mortgage. The creditworthiness review requirement spans the life of the mortgage. This requirement applies to both those borrowers who
• take title to a property subject to the mortgage without assuming personal liability for the debt, and
• assume and agree to pay the mortgage.”
FHA loan rules state that any mortgage falling within the jurisdiction of the 1989 act comply with the following when it’s time to do an FHA loan assumption:
“Mortgages subject to the 1989 Act require that the lender automatically prepare the release from liability, thereby releasing the original owner, when he/she sells by assumption to a creditworthy assumptor, who executes an agreement to assume and to pay the debt, thus becoming the substitute borrower.
The due-on-sale clause is generally triggered when an owner is deleted from the title, except when that party’s interest is transferred by devise, 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.”
The lender must insure the person assuming the FHA loan is credit-worthy. Chapter Seven:
“The lender who is the holder or servicer of the mortgage determines the creditworthiness of the assumptor, in accordance with standard mortgage credit analysis requirements. The Direct Endorsement (DE) lender may also use an approved authorized agent to process assumptions. Assumption creditworthiness review processing must be completed within 45 days from the date the lender receives all necessary documents.”
It is possible to assume an FHA loan, but both the current borrower and the person assuming the loan should expect the credit check for the new borrower and anticipate any additional time this process may take to complete.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.