Notice to Homeowner - Assumption of HUD - FHA Insured Mortgages Release of Personal Liability
Definition and meaning
The Notice to Homeowner - Assumption of HUD - FHA Insured Mortgages Release of Personal Liability is a legal document that informs homeowners about their responsibilities regarding their FHA-insured mortgage upon transferring the property. This notice highlights that even if property ownership changes, the original homeowner may still bear responsibility for the mortgage unless a formal release is obtained from the lender.
Who should use this form
This form is essential for homeowners who are selling their property and wish to transfer the mortgage obligations to a new, creditworthy purchaser. It is particularly relevant for those with FHA-insured financing, as it ensures they understand their ongoing liabilities even after the transfer of ownership.
Legal use and context
The legal context of this form is rooted in the regulations set forth by the Department of Housing and Urban Development (HUD). When a property subject to an FHA-insured mortgage is sold or transferred, the HUD policy requires that the lender may accelerate the mortgage debt if the new buyer does not meet specific credit criteria. This notice serves as a formal notification of these conditions to the homeowner.
Key components of the form
The Notice to Homeowner includes several critical elements such as:
- Property address details
- The requirement for the homeowner to make monthly mortgage payments
- Conditions under which the lender may accelerate the mortgage loan
- The process to obtain a release from personal liability for the mortgage debt
- Signature lines for the original homeowner
Benefits of using this form online
Utilizing this form online offers several advantages:
- Immediate access to professionally drafted legal documents
- Convenient download options for easy printing
- Clear guidance on how to fill out the form correctly
- Avoiding the complexities of legal jargon
Common mistakes to avoid when using this form
Homeowners should be aware of several common pitfalls when completing this form:
- Failing to sign and date the notice
- Not providing a copy to the lender as required
- Incorrectly identifying creditworthy buyers
- Overlooking the need for a release from personal liability
Form popularity
FAQ
You may obtain a release from liability by (1) making your request for the release in writing, (2) having the credit of your purchaser approved by HUD/FHA or your lender, (3) requesting that the purchaser of your property execute an agreement to assume and pay the mortgage debt thereby agreeing to become the substitute
Did you know that FHA loans (these loans are backed by the federal government) are assumable? An assumable mortgage lets the buyer take over the seller's interest rate, current payment amount, repayment period, and any other applicable terms of the mortgage. The buyer does not obtain a brand-new mortgage.
How do assumable mortgages work? When you assume a mortgage, the current borrower signs the balance of their loan over to you, and you become responsible for the remaining payments. That means the mortgage will have the same terms the previous homeowner had, including the same interest rate and monthly payments.
To assume a loan, the buyer must qualify with the lender. If the price of the house exceeds the remaining mortgage, the buyer must remit a down payment that is the difference between the sale price and the mortgage. If the difference is substantial, the buyer may need to secure a second mortgage.
All FHA insured mortgages are assumable. However, FHA has placed certain restrictions on the assumability of FHA-insured mortgages originated since 1986. Depending on the date of loan origination, a creditworthiness review of the assumptor by the lender may be required.
For example, if the home was financed 10 years ago with an FHA loan at a rate of 5%, but now the rates are up to 7%, then assuming the seller's FHA loan can be beneficial. In this situation, the buyer has an opportunity to buy a home today with the benefit of having yesterday's lower rate.
FHA loans. All FHA loans are generally assumable, as long as the lender approves the sale. For loans originated on or after Dec. 15, 1989, the lender must approve a sale by assumption as long as the buyer is found to be creditworthy.
To be approved for an FHA mortgage assumption, your: Credit score must be at least 580 to make a 3.5% down payment or between 500 and 579 to make a 10% down payment. Debt-to-income (DTI) ratio must be 43% or less. Monthly mortgage payments cannot exceed 31% of your monthly gross (aka pretax) income.
