II.A.8.n. Assumptions (09/14/15)

Owned by Kacey Olson
Last updated: Nov 25, 2018
3 min read

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Definition

ii. Occupancy Eligibility Requirements

iii. Restrictions on Loan-to-Value Ratio

iv. Processing of an Assumption

v. Underwriting Review

vi. Allowable Fees and Charges

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%.Either the original appraised value or new Property Value may be used to determine compliance with the 75% LTV limitation.

(B) HUD-Approved Secondary Residence The maximum LTV for a HUD-approved Secondary Residence assumption is 85%.Either the original appraised value or new Property Value may be used to determine compliance with the 85% 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.

(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% 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 DE program, it may have an Authorized Agent perform the review.

(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 $900.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.