HUD 232 Loan Assumability: What You Need to Know
When a loan is assumable, it means that it can be taken by another borrower, who ‘assumes’ the payments, as well as the ownership of the property. An assumable mortgage let buyers assume the entire mortgage as it is — the interest rate, the current principal balance, the repayment period, and all the other mortgage terms. Fortunately for borrowers, HUD 232 and HUD 232/223(f) loans are fully assumable, with permission from the FHA/HUD, and a 0.05% fee.
What hud 232 Loan Assumability means for borrowers
What does HUD 232 loan assumability mean for you, the borrower? It means that in a market with rising interest rates, your property will potentially be more marketable. If a buyer purchases a similar property without assumed debt they will be paying market interest rates, so, if they purchase your property, they could save a lot of money. However, if interest rates are falling, there isn’t much of an incentive for them to assume your debt.
In addition, with assumed debt, the new borrower doesn’t have much room to control the amount of their down payment, since the existing debt is already in place. However, if prepayment penalties have expired, the borrower may want to partially pay down the debt to reduce the total loan amount. While these conditions may not be ideal, there is no real drawback of having assumability as an option because buyers can elect not to use your debt.
HUD 232 Loan Assumability Allows Borrowers to Avoid Prepayment Penalties WheN Selling a PRoperty
A final benefit of HUD 232 financing is the fact that it can allow borrowers to avoid paying a prepayment penalty if they decide to sell their property just a few years after purchasing it. As long as they buyer assumes their loan, the seller will not be responsible for any prepayment penalties. However, the new borrower will have to accept that they will face prepayment penalties if they decide to sell the property before the prepayment period is up. Of course, if the new borrower also decides to sell quickly, they can always have a new buyer assume their loan.
Borrowers Assuming a HUD 232 Loan May Be Able to Get Supplemental Financing
If the new borrower wants additional money to expand the footprint of the structure, finance energy efficient upgrades, purchase additional land, or make other approved property upgrades, they may wish to take out a 241(a) Supplemental Loan. In addition, some HUD 232 borrowers may be able to take out mezzanine financing, though they should check with their lender and HUD to confirm this.