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n. Assumptions (08/19/2024)
i. Definition
Assumption refers to the transfer of an existing mortgage obligation from an existing Borrower to the assuming Borrower.
ii. Occupancy Eligibility Requirements
If the original Mortgage was closed on or after December 15, 1989, the assuming Borrower must intend to occupy the Property as a Principal Residence or HUD-approved Secondary Residence.
If the original Mortgage was closed prior to December 15, 1989, the assuming Borrower may assume the Mortgage as a Principal Residence, HUD-approved Secondary Residence or Investment Property.
iii. Restrictions on Loan-to-Value Ratio
(A) Investment Property
The maximum Loan-to-Value (LTV) for an Investment Property assumption is 75 percent.
Either the original appraised value or new Property Value may be used to determine compliance with the 75 percent LTV limitation.
(B) HUD-Approved Secondary Residence
The maximum LTV for a HUD-approved Secondary Residence assumption is 85 percent.
Either the original appraised value or new Property Value may be used to determine compliance with the 85 percent LTV limitation.
iv. Processing of an Assumption
(A) Initiating Processing
The Mortgagee must notify HUD via FHA Connection (FHAC) of assumptions:
• within 15 Days of any change of Borrower; or
• within 15 Days of the date the Mortgagee receives actual or constructive knowledge of the transfer of ownership.
This notification does not formally release the original Borrower from personal liability for the mortgage Note.
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8. Programs and Products - Assumptions (08/19/2024)
(B) Release of Liability
The Mortgagee must prepare form HUD-92210.1, Approval of Purchaser and Release of Seller, thereby releasing the original owner when they sell by assumption to the assuming Borrower who executes an agreement to assume the Mortgage and to pay the debt.
v. Underwriting Review
Assuming Borrowers must be underwritten in accordance with Origination through Post- closing/Endorsement, except for the following sections:
• Ordering Case Numbers
• Ordering Appraisal
• Transferring Existing Appraisal
• Ordering Second Appraisal
• Ordering an Update to an Appraisal
• Property Eligibility and Acceptability Criteria
• National Housing Act’s Statutory Limits
• Nationwide Mortgage Limits
• Underwriting the Property
• Underwriting the Borrower Using the TOTAL Mortgage Scorecard
(A) Exceptions in Case of Transfer by Devise or Descent
The Mortgagee may process an assumption without credit review of the assuming Borrower if the transfer is by devise or descent, or other circumstances in which the transfer cannot legally lead to exercise of the due-on-sale, such as a divorce in which the party remaining on title retains occupancy, and the assuming Borrower can demonstrate that they have made the Mortgage Payments for a minimum of six months prior to the date of application of the assumption.
(B) Exception to Minimum Required Investment
The assuming Borrower is not required to make a cash investment in the Property. The assuming Borrower may assume 100 percent of the outstanding principal balance of the Mortgage, subject to the restrictions on LTV ratio for Investment Properties and HUD-approved Secondary Residences.
(C) Responsibility of Direct Endorsement Underwriter
The holding or servicing Mortgagee is responsible for the underwriting review. The review must be completed by a Direct Endorsement (DE) underwriter registered by the Mortgagee in FHAC. Where the holding or servicing Mortgagee does not originate Mortgages or is not approved under the Direct Endorsement Program, it may have an Authorized Agent perform the review.
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8. Programs and Products - Assumptions (08/19/2024)
(D) Use of TOTAL Mortgage Scorecard for Assumptions
The TOTAL Mortgage Scorecard must not be used for assumptions. The DE underwriter must manually underwrite the assumption.
vi. Allowable Fees and Charges
(A) Processing Fee and Other Costs
Mortgagees may charge the assuming Borrower a processing fee that is reasonable and customary not to exceed a maximum of $1,800.
The Mortgagee may charge the assuming Borrower other costs in accordance with Allowable Charges Separate from Assumption Processing Fees.
(B) Interested Party Contributions
The seller or other Interested Parties may make contributions toward the assuming Borrower’s actual closing costs consistent with the requirements in Interested Party Contributions.
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II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - HUD Real Estate Owned Purchasing (09/20/2021)