Check out my colleague Paul Scheper’s
channel for accurate info: AssumeTube.tv.
- Here are HUD Guidelines for Assumtions–they are UN-ambiguous.
QUICK NOTE: Buyers under 640 FICOs OR those with a recent foreclosure, BK, short sale, tax liens, or judgments won’t qualify.
Let’s start simple
1) Agents still receive a buying and selling commission. Buyers who can’t find a home with an assumption may switch to a conventional sale.
2) Who are the typical clients?
a) Credit Worthy: ALL FHA, VA, and USDA loans are assumable for buyers with a 640+ FICO score. ALL!!
b) Self-employed buyers (rarely are tax returns required) unless they need a second TD. We have wholesale who will lend up to 85% CLTV. 90% LTV — to cover the “gap” between the loan amount and the sales price
c) Equity-rich downsizing Buyers are tempted “just to rent—for now,” instead of re-purchasing to avoid the current high prices and rates.
It is a wrong choice, as more buyers enter the market when rates decline – and home prices rise even further. In the meantime, the listing agent loses a buyer commission.
d) Owner-Occupied Buyers (Only)
e) First-time buyers seeking a fixer (AS-IS) as no appraisal is required.
f) Expired listings – Sellers that have overpriced their home
g) ITN Buyers with large down payments
e) Non- Warrantable condos whose HOAs have been de-certified by FHA? VA.Fannie and Freddie
3) Are there “shades of gray” that delay the assumption? YES! Typically, the buyer’s lack of prep – will delay the assumption.
Remember, while the assumption process is going on – we need EVERYTHING to go fast and smoothly!
ALL sellers are anxious; whenever possible, proving a buyer can qualify for a typical “DU” loan approval as a backup position is critical to accepting the offer.
The best way for buyers to approach an assumable is to provide the documentation they need for a typical loan as the assumption team assembles packages according to FHA/VA USDA guidelines.
Here are the documents the assumption team will require BEFORE they pre-process the assumption:
Note: If the buyers have a lender that has performed a “DU”
Just provide it to the assumption team along with the following:
a) Credit report
b) A copy of the buyer’s complete loan application – all pages
c) A copy of a lender’s “1008” (pronounced ‘ten-o- eight”)
d) Proof of funds – if necessary, a signed gift letter showing donor funds
e) W-2s /or 1099s (rarely are tax returns required)
f) Copy of driver’s license or state ID card
Loan assumptions “can be” nightmares, BUT the successful assumption packages – are the most complete ones.
Profiling the Lender’s Employee “Clean Submission = Timely Closings”
The profiles of the “servicers” staff (usually new and minimally trained
Remember who you dealt with when processing short sales – that is who the assumption team interacts with.
If you were that employee, which file would you work on first? Complete, well-documented packages OR one put together haphazardly?
HUD: Lenders Must Facilitate Assumptions
General Information on Assumptions — Introduction This topic contains general information on assumptions, including:
7.1. Assumability Restrictions —All FHA-insured mortgages are assumable. Mortgages originated before Dec 1, 1986; Dec 1ally contained no restrictions on assumability,
Reference: For more info on assumability, see HUD 4330.1 Rev-5,
Administration of Insured Home Mortgages.
7.2 General Information on Assumptions, Continued 4155.1 7.1.b
Restrictions on Assumptions Under the HUD Reform Act of 1989
Under the HUD Reform Act of 1989, mortgages closed on or after December
15, 1989, requires (only) credit qualification of those borrowers wishing to assume the mortgage.
Additionally, the Act stipulates that:
1) assumptions without credit approval are grounds for the acceleration of the mortgage (i.e., declined) unless the property transfer is by death or divorce (translation “NO AITDs”)
AITDs (aka “wraps”) and Due-on-Sale clauses (aka escalation clauses) are very real. When discovered by the lender (they will be), legal action is initiated by the lender (they have a fiduciary duty to their investors).
Agents facilitating an AITD: when legal action starts, the agent will get pulled into, and DRE action will undoubtedly follow!
General Info on Assumptions, Continued
Mortgages subject to the 1989 Act require that the lender automatically
prepare the release from liability, thereby releasing the original owner when they sell by assumption to a creditworthy assumptor, who executes an agreement to assume and pay the debt, thus becoming the substitute borrower.
In Conclusion
As long as the buyer thoroughly preps for the assumption and has an experienced assumption team, COE can be done in 45-60 days, but only if the buyer has been proactive with their pre-application process.
