In five years rates have increased from four percent to six percent. In the past, FHA mortgages could be assumed without qualifying. But for loans originated on or after December 1, , the new buyer must qualify according to FHA underwriting standards. The assumption process is relatively simple. Processing is less time-consuming and costly than for new originations. To release you from your loan, your lender completes a form HUD, Request for Credit Approval of Substitute Mortgagor, or a similar proprietary form.
In this case, the buyer must go through the same approval process he or she would for a new FHA mortgage. A note of caution, never enter into an agreement whereby someone else can assume your mortgage without a lender. This would not be considered an assumable mortgage and could have serious financial consequences, so be careful! On the contrary the original borrower is not responsible for the balance if the appropriate assumption transfer documentation has been properly completed.
There is an additional benefit to assuming FHA loans and that involves closing cost fees. In many instances the lender of an FHA-approved loan will charge a fee which is considerably less than that of a conventional loan.
In addition, the majority of closing costs can also be included in the loan, with the option of paying off some of these costs out-of-pocket. FHA assumable loans can be a viable option for first time home buyers depending upon the scenario which means assuming an FHA loan will not make sense for everyone.
Even with the potential for a lower interest rate, you may be better off applying for a new FHA loan. FHA Loan Requirements. Secondhand clothing. All of these goods can be smart money-saving purchases. So, what about used mortgages? Here are the basics about assumable mortgages. The interest rate is key, though other factors should be weighed, too.
Overall, assuming an existing mortgage can be simpler, easier and less costly for the buyer, says Lemar Wooley, a spokesperson at the U. Department of Housing and Urban Development.
When you assume a mortgage, the current borrower signs the balance of their loan over to you, and you become responsible for the remaining payments. That means the mortgage will have the same terms the previous homeowner had, including the same interest rate and monthly payments. A family member can assume an existing mortgage from a relative who has died, for instance, or, if one person is awarded sole ownership of a property in divorce proceedings , that person can assume the full existing mortgage themselves.
In theory, any type of home loan could have an assumable mortgage clause. However, only three types of loans typically have this feature:. In order for you to assume a mortgage, your lender has to first give you the green light. Here are the steps to take. How We Make Money. Zach Wichter.
But few scenarios will play out exactly like this. So we also need to look at the restrictions and downsides of assumable home loans. Clearly, an assumable mortgage makes little sense when mortgage rates are falling. But rates are starting to swing back upward. The current borrower has likely paid off a chunk of their mortgage.
The home may have also increased in value since it was purchased. That difference is your down payment. Well, the original borrower made a 3. Or should you try to bridge the difference? One option for home buyers is to use a home equity loan to supplement the down payment on an assumable mortgage. This involves taking out a second mortgage at the same time you assume the primary mortgage.
Fully disclose to the relevant agency that you will be obtaining subordinate financing, and submit any related documentation. If your home equity loan costs are lower than your overall savings, this strategy might make sense for you. Anyone can do a simple assumption through a purely private arrangement. But these agreements are risky. The trouble with a simple assumption is that the original borrower retains complete liability for the mortgage.
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