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If you assume an FHA loan you are basically taking over responsibility for paying the mortgage and placing the loan under your name. FHA loan rules permit loan assumption but there are specific rules and the cooperation of your lender is typically required.

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Are FHA Home Loans Assumable?

August 19, 2022

Are FHA Home Loans Assumable?
What does it mean to assume a mortgage? FHA loan rules in HUD 4000.1 state, “Assumption refers to the transfer of an existing mortgage obligation” from the current borrower to the “assuming” borrower.

If you assume an FHA loan you are basically taking over responsibility for paying the mortgage and placing the loan under your name. FHA loan rules permit loan assumption but there are specific rules and the cooperation of your lender is typically required. What does it take to get a loan assumption approved and what do you need to know about this process?

FHA Loan Assumptions Are Possible

When there’s a loan assumption transaction, the process runs differently than in other FHA loan transactions. There are similarities, of course. 

The participating lender must ensure the person assuming the loan is a good credit risk, there are rules that apply depending on when the original mortgage was closed, and you should know that the lender may require a credit check for FHA loan assumptions.

The short answer to the original question? Yes, in most cases, assuming there is lender participation, you may be able to assume an existing FHA home loan from the original borrower. You will NOT be able to assume a home loan purchased with an FHA mortgage for most loans today without the lender’s approval.

Rules for FHA Loan Assumptions

Loan assumption rules are published in HUD 4000.1, the FHA Single Family Home Loan Handbook. The rules in this area don’t tend to change much. The last updates to the loan assumption section happened back in 2015. The basic rules for loan assumptions have a lot to do with when the original mortgage occurred.

FHA home Loan assumptions require occupancy in most cases, the same as any other type of FHA mortgage loan. There are some exceptions, so it’s good to know what FHA loan rules say that could affect the process of loan approval. In 2021, when we published the original article, we noted in HUD 4000.1:

“If the original Mortgage was closed on or after December 15, 1989, the assuming Borrower must intend to occupy the Property as a Principal Residence or HUD-approved Secondary Residence.”

And what about situations involving an original home loan closed prior to December 15, 1989? HUD 4000.1 says in those circumstances, “the assuming Borrower may assume the Mortgage as a Principal Residence, HUD-approved Secondary Residence” or even an investment property.

As mentioned above, a credit check may be required of the assuming borrower, but are there situations where this can be avoided? HUD 4000.1 states that it’s all up to the lender. “The Mortgagee may process an assumption without credit review of the assuming Borrower if the transfer is by devise or descent, or other circumstances in which the transfer cannot legally lead to exercise" of any due-on-sale clause that may be applicable. What kinds of situations? Those may include a divorce “in which the party remaining on title retains occupancy, and the assuming Borrower can demonstrate that they have made the Mortgage Payments for a minimum of six months prior” to the date of application for the FHA loan assumption.

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