One of the things that drove me nuts over the course of my 20-year career as a Real Estate Agent and Broker was buyer’s lending concerns starting and stopping with down payment and interest rate. Loan terms, all loan terms, are usually more important than getting the lowest interest rate.
I was, and am, concerned that real estate owners and purchasers don’t ask enough or the right type of questions. Loans are bilateral contracts. Both the borrower and the lender must be satisfied with the cost and terms of the loan. Borrowers who are not satisfied with loan terms from one lender should shop for another loan type, lender or both.
Currently I am concerned that borrowers are not asking questions when faced with the FHA Free Assumability issue.
Let’s start with the first question: Why can lender A provide a FHA loan, but lender B cannot? The answer may be one of a multitude of reasons: Lender B may not be FHA approved, Lender A may have fewer or no overlays, Lender B may be aware of FHA underwriting issues Lender A is not aware of, or other legitimate reasons one lender may offer FHA and one may not.
When it comes to communities affected by FHA Free Assumabilty, borrowers should ask questions when one lender can lend and another cannot. Here are some questions I would advise my clients to ask lenders:
- Why can you offer me a FHA loan when the other lender cannot in my community?
- Free Assumability is sighted as a reason for FHA loan denials in the community, how can you lend FHA given the issue?
- If I close escrow with a FHA loan, but FHA does not end up insuring the loan because of the Free Assumability issue, is the loan really a FHA loan?
- If FHA does not insure the loan after closing, what happens to my up front and monthly MIP payments?
- If FHA does not insure the loan, will the loan be converted to another type of loan and what is the risk to me?
- How will I know FHA has insured the loan?
- If FHA does not insure the loan and I want to sell the house before the loan is paid off, can I still offer FHA Loan Assumption terms to a new buyer?
- If the FHA does not insure the loan and I want to sell the house before the loan is paid off, and the buyer wants to assume my loan, who will approve the loan assumption?
There is a myriad of other questions, but these are a few I think a borrower should ask as part of their loan due diligence.