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FHA Loan Assumptions: An Alternative To Short Sales?

We get many questions about FHA home loans from our clients. Some of those questions concern short sales for FHA home loans, and FHA loan assumption.

An FHA loan short sale is a transaction where the home owner, who coordinates with the lender, agrees to sell the home for less than the amount currently owed on the home. An FHA loan assumption is where a home owner agrees to transfer the property to a buyer under the terms of the original loan.

According to FHA.gov, “All FHA-insured mortgages are assumable.  Mortgages originated before December 1, 1986 generally contained no restrictions on assumability, while those originated after that date have certain restrictions.”

Lenders should note that some mortgages executed from 1986 through 1989 contain language that is not enforced, due to later Congressional action

FHA loan assumptions can and often do require the person assuming the loan to qualify.

FHA rules say a creditworthiness review may be needed. Some mortgages have restrictions in the terms of the mortgage, and FHA rules say the lender must conduct a review of the mortgage to see what could affect the deal. In some cases, restrictive mortgage contract language is null and void due to federal laws that were passed after those contracts were signed. [Read more…]