Friday, October 21, 2011

Are FHA Mortgage Loans Assumable?

You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. You must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new mortgage loan. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.

Here is how assumable FHA loans benefit the buyer:

The benefits are two fold. The buyer may get an interest rate that is much lower than the current interest rate they could get from a bank AND they have an accelerated pay off schedule because there are less years remaining on the note!

The FHA mortgage is one of the most expensive when it comes to closing costs, although the costs can be financed. To counter that cost, it helps to remember that your FHA mortgage is assumable. When you sell your property you will have an edge over your competition because of the assumable financing you can offer.

The value of assumability is as high as it is ever likely to be because of the broad consensus that interest rates in future years will be higher than they are now.

Loans insured by the FHA are assumable; conventional loans, with a few exceptions, are not. That means that a home buyer who finances the purchase with an FHA-insured loan and who sells the house later, when interest rates are higher, will be able to offer a potential buyer the right to assume his low-rate FHA loan.

After approval of the buyer by the FHA, the buyer would assume all the obligations of the mortgage upon the sale of the property, and the seller would be relieved of liability, provided the loan being assumed was originated after December 14, 1989. It will be just as if the loan had been made to the buyer.

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