Saturday, February 20, 2010
The do's and don't's of FHA assumable mortgages
Jack Guttentag, “The Mortgage Professor” at the Washington Post, has a column (on p E5) on Saturday Feb. 20, “Assumability: A hidden value to FHA loans”, link here.
He constructs some scenarios where a home buyer takes an FHA loan and pays some points with the idea that the loan will be easier to assume in a few years if mortgage interest rates actually go up. He gets into a lot of technical actuarial stuff (like what’s on LOMA FLMI examinations) about present value calculations. But sometimes FHA is a good idea.
It’s important to note that a buyer who assumes an FHA note must qualify. This rule became the case in the middle 1990s, after many defaults on assumptions, for which the original owner can be held liable. When the new buyer qualifies, the original owner is no longer responsible if the new owner defaults.