For many home buyers, mortgage rates above 6% are making it more challenging to become a home owner. With this said, there are many low-rate FHA mortgages that now finance and refinance homes loans in the 3% range and sometimes lower. First of all, what is an FHA mortgage? An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). The FHA is a government agency that was created in 1934 to help Americans become homeowners. FHA loans are available to borrowers with lower credit scores and smaller down payments than conventional loans. To learn more about the benefits of an FHA loan, click here.
Is an FHA mortgage assumable?
The short answer to this question is yes! An FHA mortgage is considered to be a “qualified assumption”. This means a new owner can take over such financing, but only if they meet certain requirements. These conditions are as follows:
- The FHA loan must have been originated after December 15, 1989.
- The seller must have lived in the home as their primary residence for at least one year.
- Generally, the new buyer must intend to use the property as a primary residence.
- The new buyer must be fully qualified in order to assume an FHA mortgage. Fortunately, the FHA allows credit scores as low as 580 with a 3.5% down payment.
- The original borrower must get a lender release from any obligation to repay the mortgage. This is important because the original owner remains responsible for repayment of the loan without a release.
- Lenders may charge as much as $900 for processing. With this said, there may be other charges as well. It is wise to ask the lender for a complete list of assumption fees and other expenses.
Summary
Although assuming an FHA mortgage at a lower rate may seem enticing, it may not necessarily be practical. The reason for this is because according to he U.S. Department of Housing and Urban Development (HUD), “a new borrower will need to cover any home value appreciation above the unpaid principal balance on the original mortgage.” Therefore, if the buyer is assuming a $400,000 loan but the property is worth $500,000, the buyer will need to have enough cash or secondary financing to bridge the $100,000 difference between the mortgage debt and the sale price. Needless to say, this can present a significant challenge.
Are you looking to buy or sell a home in South Florida? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, be sure to download the free Florida Home Search app for your smartphone or tablet.
