August 15, 2022
Can I assume an FHA mortgage? That is a question we addressed in a 2021 article about FHA mortgages, and it’s an important question on the minds of those looking to take over an FHA home loan from the original borrower.
The process of getting a loan assumptions are a bit different than a new purchase home loan application, but under FHA home loan rules, the borrower must be able to afford the loan in both cases. The lender’s job in part has to do with determining whether the borrower is a good risk.
The short answer to the original question? Yes, in most cases, assuming there is lender participation, you may be able to assume an existing FHA home loan from the original borrower. You will NOT be able to assume a home loan purchased with an FHA mortgage for most loans today without the approval of the lender.
And,. to update from our original article, it is still true that a credit check may be required (see below) depending on circumstances, and lender standards.
FHA Loan Rules For Loan Assumptions in 2022
The rules for loan assumptions in HUD 4000.1, the FHA Single Family Home Loan Handbook, are the same today as they were for our original article. This is one aspect of FHA loan rules that hasn’t changed much in recent times–one of the latest updates was all the way back in 2015.
FHA loan rules for this issue begin with a basic definition of what the FHA considers to be a loan assumption transaction:
“Assumption refers to the transfer of an existing mortgage obligation from an existing Borrower to the assuming Borrower”.
FHA home Loan assumptions require occupancy in most cases, the same as any other type of FHA mortgage loan. There are some exceptions, so it’s good to know what FHA loan rules say that could affect the process of loan approval. In 2021, when we published the original article, we noted in HUD 4000.1:
“If the original Mortgage was closed on or after December 15, 1989, the assuming Borrower must intend to occupy the Property as a Principal Residence or HUD-approved Secondary Residence.”
Furthermore, in cases where the original home loan “was closed prior to December 15, 1989, the assuming Borrower may assume the Mortgage as a Principal Residence, HUD-approved Secondary Residence or Investment Property.”
This information is still true in 2022 and has not changed based on the most recent reading of the rules. This information was accurate at press time but it never hurts to double check if you haven’t explored your options in a while.
FHA Loan Assumption Credit Check Rules
A credit check may be required of the assuming borrower in 2022, and it may be smart to assume there WILL be a credit check. FHA loan rules provide some discretion for the lender in this area–there is an option to process the loan without checking credit, but certain conditions must be met.
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 any due-on-sale clause that may be applicable.
That can, in 2022, include situations like 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.”
A credit check may, while not specifically required by FHA loan rules except as described above, be needed because your lender standards make it a necessity. Remember that lender requirements also apply in addition to FHA loan rules.
FHA Loan Assumption Down Payment Requirements
In 2022, a borrower may be able to assume an FHA mortgage loan without making a down payment. That is true on paper in the FHA loan rules, but keep in mind that the lender may require one depending on circumstances.
According to HUD 4000.1, “The assuming Borrower is not required to make a cash investment in the Property. The assuming Borrower may assume 100% of the outstanding principal balance of the Mortgage, subject to the restrictions on LTV ratio for Investment Properties and HUD-approved Secondary Residences”.
Talk to your loan officer to determine how these rules and other FHA loan assumption requirements may affect your transaction.