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Assuming an Existing FHA Loan/Mortgage

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Assuming an Existing FHA Loan

Most mortgages have a requirement that the loan must be paid in full when the property is sold. However, FHA offers a different option to the seller and buyer. It is possible for the buyer to take over the existing FHA mortgage from the current property owner. This is a very enticing offer for someone that has a mortgage with a great interest rate. Here are the guidelines for an assumable FHA mortgage.

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Review Existing Loan

The first thing you should do as a potential buyer is review the existing loan documents. Any loan that originated prior to December 1 in 1986 is allowed to go through a “simple assumption” procedure. This means the buyer does not have to qualify for the FHA mortgage. For loans that were originated on after the December date, the buyer will have to qualify for the loan just like any new borrower.

Negotiate a Price with the Seller

Most sellers would like to receive a large part of the equity they paid in to the mortgage over the years since they originated the loan. The price you can negotiate is really dependent on your ability to deal and the seller’s motivation for getting rid of the home. One thing that must be clear; the buyout amount given from buyer to seller cannot be financed in to the existing FHA mortgage. This is money that needs to be paid either in cash or with a loan separate from the mortgage.

It may be possible to convince the seller to finance the buyout amount. This would mean that you have two loans to repay in order to purchase the home.

Talk to a Mortgage Lender

Since you will likely have to qualify for an FHA mortgage loan, it is advisable to talk to a lender experienced with FHA loans. The lender can review your credit file, determine your monthly income per FHA guidelines and find out if you qualify for the loan.

Determine Current Loan Status

You need to find out if the current property owner is up to date on their mortgage payments. If there are any late payments, those payments are transferred to the new buyer. This can be rectified by either paying the amount necessary to get current or requesting a modification of the loan.

Inquire About Down Payment

Since FHA asks for a down payment equal to 3.5% of the price, this rule will apply to someone assuming the loan. In this case, the 3.5% is based on the existing loan balance.

If you are approved for the loan, you may proceed with the closing process. You should ask the lender to contact a local title agency to research the title to ensure there are no liens on the property other than the FHA mortgage. Additional liens will have to be paid in order to transfer the deed in to your name as owner.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.
M. Lynn Delatte
Developers Realty - Broadview Heights, OH

I had not thought about someone trying to takeover an FHA loan, but I bet this will be more attractive and will happen a bunch more when the interest rates start increasing.  Thanks for the info!

Oct 22, 2012 01:51 AM
Michael Collins
*ROCK REALTY|Broker|Realtor|Real Estate|WI Short Sale Agent* - Janesville, WI
CDPE, SFR , Wisconsin Short Sale Specialist Realto

Yes, with just a 1-2 point rise in interest rates, assuming an FHA mortgage may become much more popular.

Thanks for dropping by! 

Oct 22, 2012 01:57 AM

Hi Michael, thank you for this information, I found this via Google. I'm considering offering my house as qualifying assumable FHA since I'm at 3.75% and have no way to make a profit due to the 2008 IRS "credit" that has to be paid back, I just want out. The IRS gets the first $6000 in "profit" that I make when I sell to settle the credit and if I don't make a profit, it's written off as I understand it. For the purposes of tax returns/credit, when someone assumes my loan is that still viewed as "selling my house"? I notice though, that you mention a 3.5% downpayment - many other sources are saying there is no down payment required when assuming an FHA loan. Is there a reliable source I could be looking at to better educate myself on this? I'm also trying to sort out other questions of timing for closing (can I close on my new FHA house and wait a week or two before closing on my current house when someone assumes it?), me qualifying for a new FHA loan as I look to buy again, etc. Thanks for your time!

Dec 07, 2012 01:42 AM
Michael Collins
*ROCK REALTY|Broker|Realtor|Real Estate|WI Short Sale Agent* - Janesville, WI
CDPE, SFR , Wisconsin Short Sale Specialist Realto

Hi Tiffany,

Thank you for your comment. Mortgage and real estate requirements and stipulations seem to change on a weekly basis. As a real estate broker, I am unable to give you advice on items like this.

To get the most up to date information, I would suggest that you contact a qualified accountant as well as a mortgage broker. They should be able to answer your questions in detail. I also found this contact info from the HUD website.

Customer Service: Questions and Complaints

For questions or complaints about FHA loans or programs, contact our FHA Resource Center:

 -   Find the answer online
 -   Email us
 -   Call toll-free (800) CALL-FHA (800-225-5342)

For questions or complaints about HUD rental programs, including Housing Choice (Section 8) Vouchers, contact our Public and Indian Housing (PIH) Resource Center:

 -   Email us
 -   Call toll-free (800) 955-2232

For general questions or complaints about HUD or its programs, contact the HUD office nearest you. 

Dec 07, 2012 02:36 AM