Restrictions on FHA loan assumptions aren’t terribly complicated, but if you are interested in assuming an FHA loan there are some things to keep in mind, starting with a requirement that the lender participates in the process. Most FHA mortgage loans closed in recent years will require the lender’s approval and participation in order to successfully assume an FHA loan.
But there are other considerations, too. For example, a home purchased with an FHA mortgage on what the FHA handbook describes as “Indian Land” requires the approval of the local tribal authority. According to HUD 4000.1:
“The Mortgagee cannot approve an assumption of a Mortgage secured by a Property located on an Indian Land/reservation unless the Indian Tribe has approved the assumption or sale of the rights to the Property securing the Mortgage. The Mortgagee must comply with all requirements for assumptions.”
There are also restrictions or additional requirements depending on the type of property the new borrower assuming the FHA loan will take possession of. HUD 4000.1 states that secondary residences, for example, have different LTV issues than primary residences. “The maximum LTV for a HUD-approved Secondary Residence assumption is 85%. Either the original appraised value or new Property Value may be used to determine compliance with the 85% LTV limitation.”
FHA loan rules also have something to say about processing FHA loan assumptions without doing a credit review of the assuming borrower. When is this possible? According to the FHA loan handbook:
“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.”
There are also restrictions and guidelines for what the lender may charge when processing FHA loan assumptions. “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 the FHA loan rules for “Allowable Charges Separate From Assumption Processing Fees”.
Speak to a loan officer to determine what your actual costs for an FHA loan assumption might be. Lender rules, state law, and other factors may also apply in addition to FHA loan requirements.