FHA loan assumptions

HUD's rule is short: “All FHA-insured Mortgages are assumable” (HUD Handbook 4000.1, III.A.3.b). The servicer can't add its own restrictions on assumptions after closing except where HUD regulations allow it. What the buyer must show — and what the servicer can charge — is set out in HUD Handbook 4000.1.

Creditworthiness: a manual review

• The buyer is underwritten under FHA's normal origination rules, but the appraisal, property-eligibility and loan-limit sections are skipped — the existing loan and property stay as they are (HUD Handbook 4000.1, II.A.8.n).
• FHA's automated TOTAL Mortgage Scorecard must not be used. A Direct Endorsement (DE) underwriter must manually underwrite the assumption (HUD Handbook 4000.1).
• The holding or servicing lender is responsible for the review; if it doesn't originate loans or isn't DE-approved, it may use an authorized agent (HUD Handbook 4000.1).
• The buyer needs a valid Social Security number or EIN (or must meet HUD's exception) (HUD Handbook 4000.1, III.A.3.b).
• No minimum cash investment: the buyer may assume 100% of the outstanding balance (subject to the LTV limits below) (HUD Handbook 4000.1).

The investor restriction (owner-occupancy)

Source: HUD Handbook 4000.1, II.A.8.n.ii–iii. Either the original appraised value or a new value may be used to check the LTV limit.

Fee caps

• Processing fee: up to $1,800, and it must be “reasonable and customary” (HUD Handbook 4000.1). HUD raised the cap from $900 to $1,800 effective Aug. 19, 2024 (FHA INFO 2024-30).
• Third-party costs at actual cost: credit reports and verifications of employment.
• Up to $45 to prepare an executed release-of-liability form (HUD-92210.1) when a borrower asks for one as proof of an earlier release (HUD Handbook 4000.1, III.A.3.b).
• Refund: if the buyer's credit is approved but the assumption doesn't happen for reasons beyond the buyer's control, the servicer must refund half of its processing fees (HUD Handbook 4000.1).
• The servicer can't charge a fee just to switch hazard insurance to the buyer when the existing policy hasn't expired.
• The seller or other interested parties may contribute toward the buyer's actual closing costs, within FHA's interested-party contribution rules (HUD Handbook 4000.1).

Release of liability for the seller

The servicer must prepare form HUD-92210.1, Approval of Purchaser and Release of Seller, releasing the seller when the buyer signs an agreement to assume the mortgage and pay the debt (HUD Handbook 4000.1). Notifying HUD of the new borrower — which the servicer must do within 15 days — does not by itself release the seller. HUD's Notice to Homeowner tells sellers to make sure they get the release (HUD Notice to Homeowner).

Family transfers and partial claims

• Inheritance or divorce: the servicer may process the assumption without a credit review if the transfer is by devise or descent, or can't legally trigger the due-on-sale clause (such as a divorce where the party on title stays in the home), and the person assuming has made the payments for at least six months (HUD Handbook 4000.1).
• Partial claim: if the seller has an FHA partial claim, it becomes due when the seller no longer owns the home, and the servicer must get an official payoff letter (HUD Handbook 4000.1, III.A.3.b).