FHA/VA/USDA Loan Assumptions for Investors
Realtor · Gilbert, AZ · Member since 2017 · 21 posts · 15 votes
Hi Guys,
I am a real estate agent in Arizona. I am trying to get creative for some of my buyers/sellers out here in regards to seeing if loan assumptions may be helpful to piece some deals together for my primary buyers and even investors. One question I had for you all, can FHA/VA/USDA loans be assumed by an investor or does it have to be a primary buyer? Also, for those of you that have experience doing assumptions, how long did it take from start to finish?
If you respond to this, please also comment if this is something you have actually done before or if its just something you are knowledgeable about.
Mike,
I am currently looking into this exact situation on a home and lot attached to an FHA loan. This house is on the MLS and has been for about 6 months, but has not had any success in going under contract. I know that this home is also has absent owners, as they have moved to another city.
I will preface this information with the fact that I do not have the exact answer as I have not completed this transaction, nor have I ever attempted this type of transaction, yet.
First off, it is my understanding that all FHA, VA, and USDA (Fannie and Freddie MBS) loans are considered assumable with "appropriate buyer qualifications" by the lender. Second, in what I have researched specifically on FHA loan assumption, someone looking to "assume a loan" MUST BE INTENDING TO LIVE IN THE PROPERTY (with the exception of loan originating prior to Dec 1, 1986) in order to assume the loan, with some considerations/restrictions:
"Mortgages originated before December 1, 1986 generally contained no restrictions on assumability, while those originated after that date have certain restrictions."
"...the lender may require a creditworthiness review of the assumptor["buyer"]."
"Lenders should note that some mortgages executed from 1986 through 1989 contain language that is not enforced, due to later Congressional action. Mortgages from that period are now freely assumable, despite any restrictions stated in the mortgage."
"This requirement applies to both those borrowers who
take title to a property subject to the mortgage without assuming personal liability for the debt, and
assume and agree to pay the mortgage."
****PLEASE NOTE******* :
"An assumption solely in the name of a corporation, partnership, sole proprietorship or trust is not acceptable if creditworthiness review is required."
"private investors are prohibited from assuming insured mortgages that are subject to the restrictions of the 1989 act. This restriction applies whether or not there is a release from liability by the lender of the selling mortgagor"
"Mortgages subject to the 1989 Act require that the lender automatically prepare the release from liability, thereby releasing the original owner, when he/she sells by assumption to a creditworthy assumptor, who executes an agreement to assume and to pay the debt, thus becoming the substitute borrower."
This information seems to say that if the loan was originated prior to Dec 1, 1986, which should not be the case as this is greater than 30 years, then the loan is automatically assumable with no stipulations. However, if you are assuming a loan that originated post Dec 1, 1986, then you must have intention to live in the property. Also note that in the event that you are assuming a loan as an investor, the loan must be originated prior to December 1, 1986, and you must have no greater than a 75% LTV either of the original appraised value or the current appraised value (which should never be the case since, again, the loan is greater than 30 years old).
PLEASE REFERENCE: HUD.gov website, for HUD 4155.1 Chapter 7 Assumptions: https://www.hud.gov/sites/docu...
Mike,
I am currently looking into this exact situation on a home and lot attached to an FHA loan. This house is on the MLS and has been for about 6 months, but has not had any success in going under contract. I know that this home is also has absent owners, as they have moved to another city.
I will preface this information with the fact that I do not have the exact answer as I have not completed this transaction, nor have I ever attempted this type of transaction, yet.
First off, it is my understanding that all FHA, VA, and USDA (Fannie and Freddie MBS) loans are considered assumable with "appropriate buyer qualifications" by the lender. Second, in what I have researched specifically on FHA loan assumption, someone looking to "assume a loan" MUST BE INTENDING TO LIVE IN THE PROPERTY (with the exception of loan originating prior to Dec 1, 1986) in order to assume the loan, with some considerations/restrictions:
"Mortgages originated before December 1, 1986 generally contained no restrictions on assumability, while those originated after that date have certain restrictions."
"...the lender may require a creditworthiness review of the assumptor["buyer"]."
"Lenders should note that some mortgages executed from 1986 through 1989 contain language that is not enforced, due to later Congressional action. Mortgages from that period are now freely assumable, despite any restrictions stated in the mortgage."
"This requirement applies to both those borrowers who
take title to a property subject to the mortgage without assuming personal liability for the debt, and
assume and agree to pay the mortgage."
****PLEASE NOTE******* :
"An assumption solely in the name of a corporation, partnership, sole proprietorship or trust is not acceptable if creditworthiness review is required."
"private investors are prohibited from assuming insured mortgages that are subject to the restrictions of the 1989 act. This restriction applies whether or not there is a release from liability by the lender of the selling mortgagor"
"Mortgages subject to the 1989 Act require that the lender automatically prepare the release from liability, thereby releasing the original owner, when he/she sells by assumption to a creditworthy assumptor, who executes an agreement to assume and to pay the debt, thus becoming the substitute borrower."
This information seems to say that if the loan was originated prior to Dec 1, 1986, which should not be the case as this is greater than 30 years, then the loan is automatically assumable with no stipulations. However, if you are assuming a loan that originated post Dec 1, 1986, then you must have intention to live in the property. Also note that in the event that you are assuming a loan as an investor, the loan must be originated prior to December 1, 1986, and you must have no greater than a 75% LTV either of the original appraised value or the current appraised value (which should never be the case since, again, the loan is greater than 30 years old).
PLEASE REFERENCE: HUD.gov website, for HUD 4155.1 Chapter 7 Assumptions: https://www.hud.gov/sites/docu...
I wanted to provide an update on the mortgage assumption we spoke about in this tread previously:
We have successfully closed on the mortgage assumption (an FHA loan). Our total out of pocket for this transaction was less than $20k: $6k to seller's realtor (so we could ensure the deal was facilitated and explained to the sellers), $11k toward sellers "equity," and $3k to lender and title for documentation/transaction fees. 3% interest rate, 28 yrs, 6 months fixed term. Also required to assume the escrow account (at least in our case): PMI - $120/month (this does not change nor is it possible to recalculate based on our creditworthiness), property taxes - $5500/annual, and insurance - $1400/annual (we were able to move it into our own provider once our names were placed on mortgage).
Start to finish: 7 months (Dec 12, 2022, first point of contact with seller and their mortgage servicer - AmeriHome - to June 23, 2023, closing day). Our names were placed on Deed on June 23, 2023, our names were placed on mortgage (through HUD and sold to a new mortgage servicer - M&T Bank) on July 20, 2023.