Assuming an FHA Loan

Asked by Hortgirl64, Eastampton Township, NJ Fri Jun 10, 2011

I bought a home with my first husband and it was an fha loan. He left less than a year after we married and left the house with me. I lived in the house a total of 3 years before moving and renting it out. According to the divorce decree I was supposed to refinance to get his name off. I know there are a lot of stipulations with the fha loan and was wondering if I assumed the loan with my husband now if the rule that you have to occupy the house in the first 60 days and live in it for a year would apply again since I already satisified that.
My husband is in the air force and just got orders to Germany which would make that impossible. We would really like to keep the house without refinancing it as an investment property. Advice please.

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5
Matthew Heit…, Agent, Stoughton, WI
Tue Oct 16, 2012
Most mortgages have a requirement that the loan must be paid in full when the property is sold. However, FHA offers a different option to the seller and buyer. It is possible for the buyer to take over the existing FHA mortgage from the current property owner. This is a very enticing offer for someone that has a mortgage with a great interest rate. Here are the guidelines for an assumable FHA mortgage.

http://www.trulia.com/blog/RockRealty/2012/10/assuming_an_ex…
0 votes
, ,
Fri Jun 10, 2011
This is an involved process, but can be done under certain circumstances. If you were going to consult a real estate attorney, then I'd recommend not just any real estate attorney, but a real estate attorney who has deep understanding of HUD's FHA mortgage procedures. I feel you can likely accomplish what you are looking to do without paying for an attorney though.

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr… states that "With permission from the appropriate Homeownership Center (HOC), private investors, including nonprofit organizations that do not meet the criteria described in HUD 4155.1 4.A.6.a, may obtain FHA-insured mortgages when:

purchasing HUD Real Estate Owned (REO) properties [which is not you], or
obtaining a streamline refinance without an appraisal [which could be you]"

When you do an FHA streamline refinance without an appraisal, no new value is given and the value of the home when the loan was originated is the one considered.

For info on that streamline refinance without an appraisal process, we go to http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr… - specifically section 2C & 2E

2C says "The maximum insurable mortgage for streamline refinances without an appraisal cannot exceed the outstanding principal balance" plus it has definitions on what some of those words mean to HUD (you should study them). That phrase means that you more or less cannot include closing costs/escrow account/pre-paids - so be prepared to pay those out of pocket.

2E has further details about streamline refinancing as non-owner occupied. Again it reiterates, "Streamline financing by investors, or for secondary residences may only be made without an appraisal". It has some "Reference" links at the bottom. The first two don't really apply to your situation, but the 3rd one, http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr… does.

4C says some important stuff, including:

"Individual investors who credit qualify may assume mortgages made on investment properties." - meaning debt ratios, credit, etc. will all be evaluated if you ASSUME the mortgage (which is not necessarily the same thing as a streamline refinance without an appraisal). It can also be interpreted to say that only mortgages initially made on investment properties can only be assumed by new investors (such as a purchase of a HUD REO property), so if the mortgage was made on a primary residence it would not be eligible to be assumed by an investor. The jurisdictional HOC (Homeownership Center) could clarify. The HOC that covers Ohio is the Philadelphia - their staff directory is http://portal.hud.gov/hudportal/HUD?src=/program_offices/hou… but it doesn't really help much, so you may want to contact Atlanta's at http://portal.hud.gov/hudportal/HUD?src=/program_offices/hou…

It also says: "Streamline refinancing without an appraisal is permitted on investment properties"
and "Base mortgage calculation is 75% LTV, based on the lesser of the appraised value or the sales price" which seem to contradict each other. But remember that streamline refinancing for investment properties in your situation can ONLY be done without an appraisal, so there is no LTV calculation.

You could contact an attorney to go over your situation, probably will cost you money. You could contact HUD's HOC and inquire, and they will be free of charge but they are also the one insuring the mortgage so you'd want to tread carefully....

... or if I was you, what I would do is inquire with a mortgage lender if you could do a credit qualifying no appraisal non-owner occupied streamline refinance... very small percentage of lenders actually offer those, but I can point you in the right direction if you'd like. That way if you get a new FHA mortgage as non-owner occupied, the occupancy would be 100% legit, the mortgage would be in your name, and you would have pretty much the same rates that FHA is currently offering (non-owner usually has a slight increase to the rate with FHA)/not paying conventional non-owner occupied rates.

However the catch is you will have to pay mortgage insurance, and it's currently at 1.15% of the loan amount per year, so it may be higher than what you are paying now (which may be only like .5% per year)... so I'd also consider conventional financing without mortgage insurance to compare the overall payments. If if you have 25% equity you should be able to accomplish... if you don't have the equity, refinancing into a non-owner occupied conventional loan will be very difficult.
0 votes
Lenderbradfo…, , Cleveland, OH
Fri Jun 10, 2011
To assume the Loan, it is my understanding that it needs to be done by a NEW OWNER OCCUPANT. So I would say Assumption is not the direction to go. Refinancing might be an option to remove your ex husbands name. I believe the rules are you can only refinance the existing loan balance because it is no longer Owner Occupied. There may be other rules and only will additional details can all your options be determined. You will find my contact info on my profile. Call me if you want.
0 votes
Laura Feghali, Agent, Stamford, CT
Fri Jun 10, 2011
Hello Hortgirl64,
I suggest that you contact a real estate attorney on this matter as maybe you can just buy out your first husband's interest on the property rather than have to refinance. Your question is a legal one and best answered by an attorney.
Good luck!

Laura Feghali
Prudential Connecticut Realty
0 votes
Tim Moore, Agent, Kitty Hawk, NC
Fri Jun 10, 2011
Refinancing now might actually be a savings to you. You are going to need to speak to your lender about this because you will have to be approved and qualified to assume an fha loan.
0 votes
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