FHA Loans Oregon

Assumable FHA Insured Loans

I read a lot of information that is being offered on the internet and some is right on and some is not. The ones that really get to me are the ones that are “almost” right because they are the ones that are harder to pick out than the ones that are definitely “wrong.” Such is the case of a post I came across today about the “assume-ability” of both FHA and VA loans. I am not going to link to this post because it would give them exposure for inaccurate information. I will be quoting (italics) some of the statements while giving the correct information about assuming a VA Guaranteed Loan or an FHA Insured Loan.

First of all, be aware that both FHA and VA loans are assumable. That means that, if you qualify, you can take over the existing FHA or VA loan from the person that has it currently, under certain conditions. Now, let’s talk about what was wrong in this article. The first statement that caught my attention was:

“The original borrower (the seller) is “still responsible” during the first five years of the mortgage; if the new borrower (the buyer) makes late payments, the buyer and seller each have their credit damaged. And one of the top derogataries (sic) on your credit is a mortgage late after foreclosure and bankruptcy.”

 This is untrue. If the FHA home owner, sells their home to a qualified “owner occupant” and completes the necessary paperwork for assumption of the loan with the current lender, the seller is released from all responsibility. However, if the seller sells to an investor or non credit worthy buyer, the loan cannot be assumed and can be accelerated (made payable immediately.) Any sale of the property without the proper assumption paperwork with the current loan can and should result in the entire balance declared as “immediately due and payable.”

In the Notice to Homeowner FHA buyers are warned:

“The Department of Housing and Urban Development (HUD) has acted to keep investors and non-creditworthy purchasers from acquiring one- to four-family residential properties covered by certain FHA-insured mortgages…. HUD will therefore direct the lender to accelerate this FHA-insured mortgage loan if all or part of the property is sold or transferred to a purchaser or recipient (1) who will not occupy the property as his or her principal residence, or (2) who does occupy the property but whose credit has not been approved in accordance with HUD requirements.”

If the assumption is done properly, a Form HUD-92210-1 (Approval of Purchaser and Release of Seller)  will be provided. Without this release, the seller is still liable for the debt. All of this information is furnished to the FHA buyer when they receive their home loan.

Mortgage Interest Rate

Now, for the next statement:

“FHA loans require the borrower to have mortgage insurance; this is approximately 0.50% each year. In comparison, a 5% fixed rate FHA loan, which is really 5.5%, is far better than a 9.625% the market’s mortgage rate.”

To me, this proves that the writer doesn’t understand interest rates or annual percentage rates (APR). The addition of the mortgage insurance (.55% BTW, not .5), actually changes the effective (APR) significantly more than .5% for the purchaser but significantly less for the assumer. The actual effective APR would vary depending on when the loan was assumed.

VA Guaranteed Mortgage Loans

Next, the statement about assuming VA loans:

“Permitting a veteran to assume a VA home loan freezes the selling veteran’s eligibility for a new VA loan.”

This is another half falsehood. If a veteran sells their home and another (qualified) veteran assumes the loan, the original veteran has their VA eligibility reinstated. If the veteran sells there home and a non veteran assumes the loan, the eligibility is not reinstated until the home is completely paid off.

Call for Correct Information

Just another piece of information about assumable loans, most adjustable rate mortgages (either government or conventional) are assumable but the majority of fixed rate conventional loans are not assumable. So, if you have questions about your mortgage currently or in the future, give me a call. You can reach me at 541-342-7576/541-221-3455 Cell or eugeneloanguy@gmail.com. You can trust me for the right answers.