FHA loans · HUD Handbook 4000.1Assuming an FHA loan: what the buyer, the seller and the servicer need

When a seller's FHA loan carries a low rate, a buyer may want to take it over. Under HUD Handbook 4000.1, all FHA-insured mortgages are assumable, and the servicer may not add restrictions on assumptions after closing except where HUD allows. For loans closed on or after December 15, 1989, the buyer must intend to occupy the home as a principal residence or HUD-approved secondary residence (with an 85% LTV limit for a secondary residence); only older loans can be assumed by investors, at up to 75% LTV. The assuming buyer needs a valid SSN or EIN and is underwritten by the holding or servicing lender's Direct Endorsement underwriter – manually, because TOTAL Mortgage Scorecard isn't used for assumptions – though no new appraisal is ordered and no minimum cash investment is required: the buyer can assume 100% of the outstanding balance. A transfer by inheritance, or one that can't trigger due-on-sale such as a divorce where the occupant stays, can be processed without a credit review if the assuming party has made the payments for at least six months. The servicer may charge a reasonable processing fee of up to $1,800, plus actual third-party costs such as the credit report; if the buyer is approved but the assumption doesn't happen for reasons beyond their control, half the fee is refunded. The seller is released from personal liability only when the servicer prepares form HUD-92210.1, Approval of Purchaser and Release of Seller; just notifying HUD doesn't release them. If there is an FHA partial claim on the property, it becomes due and payable at the assumption. The seller and other interested parties may contribute toward the buyer's actual closing costs under FHA's interested party rules.