Latest News on VA and FHA Assumptions
July 10, 2018 | Tom Ashworth
VA and FHA Assumptions
Buyers over the last 25 years have VA and FHA Assumptions from previous owners. Many people believe this was caused in the 1980’s when VA and FHA started requiring buyers to qualify for an assumption. If they did not have to qualify, it would benefit many buyers with poor credit.
Since the perspective buyers have to qualify for assumptions the same way they would for a brand new loan, they generally pick the mortgage that has the lowest interest rate. As most people know, rates are at rock bottom and they will start to increase. When they current rate increase, then the FHA and VA loans that were created now will look great to buyers even if they have to qualify.
The main advantages of assuming a VA or FHA assumptions loan when the current interest is higher is:
- Mortgage loan is into amortization schedule so you will pay more towards principal and less toward interest.
- If a mortgage has a lower interest rate the loan will amortize faster.
- Most VA and FHA assumptions have lower closing costs than a new mortgage and you don’t have to pay loan origination fees.
- It is easier to qualify for an assumption.
- You do not have to pay for an appraisal.
FHA assumptions are only allowed as owner-occupied residents. The borrower must meet current FHA guidelines for borrowers. The total debt ratio including house payment to be assumed cannot exceed 41% of borrowers’ monthly gross income.
VA loans are also assumable with buyer qualification. However, in order for the veteran Seller to have their eligibility reinstated, the buyer must also be a veteran with eligibility.
A 1% difference in the current rates and a lower assumable mortgage rate begins to make it very attractive to assume a mortgage. When the differential becomes even greater, assumptions will become more prevalent than they’ve been in over twenty years.
If you are a Veteran, so is Tom Ashworth, he understands the VA and FHA Assumptions process give him a call at (208)830-7991.