Can I Assume An FHA Mortgage?
Can I take an FHA mortgage? That is a question on the minds of those looking to take on an FHA home loan from the original borrower. Credit assumptions are slightly different from buying a new home loan, although in either case the borrower must be able to afford the loan.
The short answer is that in most cases, with the involvement of the lender, you may be able to take on an existing FHA home loan from the original borrower.
A credit check may or may not be required depending on the circumstances and lender standards (see below).
It is the lender’s job to determine whether or not to borrow – the FHA loan rules in HUD 4000.1 allow an FHA mortgage to be taken, but the process requires the lender’s involvement.
FHA loan rules for credit acceptances
The rules for taking out loans can be found in HUD 4000.1, the FHA’s Handbook for Single Family Home Loans. It starts the section with a basic definition of what the FHA considers a loan-underwriting transaction:
“Takeover refers to the transfer of an existing mortgage obligation from an existing borrower to the receiving borrower”.
FHA Home Loan Assumptions, in most cases, require an occupancy, just like any other type of FHA mortgage loan. There are a few exceptions, so it’s good to know which FHA loan rules could affect the loan approval process.
HUD 4000.1 instructs the lender: “If the original mortgage was closed on or after December 15, 1989, the receiving borrower must intend to have the property as a primary residence or HUD-approved secondary residence.”
In cases where the original home loan was “closed prior to December 15, 1989, the receiving borrower may take the mortgage as primary residence, HUD-approved secondary home, or investment property”.
Rules for FHA Loan Underwriting Credit Review
A credit check may or may not be required of the receiving borrower, but it is best to assume that there will be a credit check. The FHA loan rules give the lender some discretion in this area.
HUD 4000.1 states: “The mortgagee can process a takeover without a credit check of the accepting borrower if the transfer is made by intention or descent or other circumstances under which the transfer cannot legally lead to the exercise of the due amount …”
This may include situations such as divorce “where the remaining party retains ownership and the receiving borrower can demonstrate that they have made the mortgage payments for at least six months prior to the date of application of the takeover”.
It is very important to keep in mind, as you read the above passage, that your participating FHA lender may have requirements that go beyond these rules.
That means a credit check may be required, although it is not specifically required by the FHA loan rules, except as detailed above because your lender standards require it.
FHA Loan Down Payment Requests
The FHA loan rules state that a borrower may be able to take out an FHA mortgage loan without paying a down payment.
According to HUD 4000.1, “the acquiring borrower is not required to make a cash investment in the property. The receiving borrower can take over 100% of the principal outstanding balance of the mortgage, subject to LTV ratio restrictions for investment properties and HUD-approved second homes.
Speak to your loan officer to determine how these rules and other FHA loan underwriting requirements may affect your transaction.