The low interest rates secured by borrowers recently on FHA mortgages may become valuable in a different way in the future. FHA and VA mortgages are assumable at the existing interest rates subject to buyer qualification.
Buyers wanting to assume an existing FHA mortgage must be owner-occupants and meet the current FHA guidelines. Applicants should have a minimum 600 credit score, total debt with house payment to be assumed not to exceed 41 percent of their monthly gross income, and meet other standard income, credit and qualifying requirements.
The benefits are not only assuming a lower interest rate resulting in lower payments, but the closing costs on an assumption are much less than originating a new loan. The fact that the mortgage is already into an amortization schedule and that lower interest rate loans amortize faster than higher interest rate loans make it build equity faster than a new mortgage.
When interest rates eventually rise, assumptions will provide an opportunity for buyers to lower their cost of housing significantly while improving their wealth positions.