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In some situations—such as a divorce or the death of a loved one—you might want to transfer a mortgage to someone else. However, it can be difficult to qualify for a transfer outside of special circumstances.
If you’re wondering whether you can transfer your mortgage and if you qualify, here’s what to know.
What Is a Mortgage Transfer?
A mortgage transfer is when you transfer your existing home loan—including its current interest rate and terms—to another person. This allows the other person to assume responsibility for the home and the lender’s lien on it without needing to get a new mortgage.
Is It Possible to Transfer a Mortgage?
While you won’t be able to transfer your mortgage in most cases, you might be able to if you have one of the following:
An Assumable Mortgage
A mortgage is considered “assumable” if the loan agreement allows the original borrower to transfer their loan to someone else. In this case, the buyer of the home would simply take over the seller’s existing loan, and the current rate, terms and balance would stay the same.
Loans backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and Department of Veterans Affairs (VA) are typically assumable. Conventional mortgages, on the other hand, usually aren’t assumable. Instead, conventional mortgages typically come with a due-on-sale clause—meaning the loan must be paid off if you want to transfer the property title.
Even with an assumable loan, the buyer will still need to meet the lender’s qualifications to be eligible. This usually means filling out an application, undergoing a credit check and providing documentation, such as income and employment information. On the plus side, a home appraisal usually isn’t required—though it’s still a good idea for the buyer to have the property inspected for any repair issues.
Sometimes a mortgage can be transferred even if it isn’t assumable—and a lender might also opt to be more generous and permit transfers on a case-by-case basis. For example, a transfer might be allowed if:
- You want to transfer the loan to a spouse, child or another relative.
- You’re going through a divorce or separation.
- The original borrower dies and the loan must be transferred to a surviving joint tenant or relative.
- The loan is being moved into an inter vivos trust (also known as a primary trust) where the borrower is a beneficiary.
Like with an assumable loan, taking over another kind of loan means the new borrower still needs to meet requirements set by the lender. Eligibility criteria can vary by lender but will likely include a credit and income check to make sure the new borrower is creditworthy and can afford to repay the loan.
How to Transfer a Mortgage
If your loan is eligible and you’d like to transfer it, there are several steps you should follow.
- Review your mortgage documents. It’s a good idea to double-check your loan agreement to see if you’re allowed to transfer the mortgage. If the agreement contains a due-on-sale clause and you don’t fall under special circumstances, you likely won’t be able to proceed.
- Request a transfer. Contact your lender to initiate the transfer. Requirements will vary by lender and loan type. For example, if you have an FHA loan, you’ll need to submit a “release of liability” form, and the new owner will have to meet creditworthiness criteria. Or if you have a VA loan, you’ll have to be current on payments and submit a release of liability form, and the buyer will undergo a credit check.
- Consider extra help. You might want to enlist the help of an attorney to ensure the transfer goes as smoothly as possible, namely if it involves a divorce, inheritance or joint tenant. Otherwise, follow the process outlined by your lender.
- Complete the transfer. Make sure to follow the process outlined by your lender. It typically takes at least 45 days for the loan to be processed and for the credit check to be completed. Continue making your loan payments in the meantime until you’re notified that you’re no longer responsible for the loan. Remember that even one late payment could damage your credit and cause you to become delinquent on your mortgage—and there’s always a risk that the transfer won’t be approved—so don’t take any chances.
What Are Transfer Taxes on a Mortgage?
Most states charge a real estate transfer tax whenever real property—such as a home—is sold or transferred. This is a one-time fee that’s paid, usually at closing, before the deed is signed. Townships, boroughs, cities and counties might also charge these taxes.
The party responsible for paying these taxes varies by location; it could be the buyer, seller or both. The rate is also different based on where you live.
In some situations, jurisdictions might lower or waive these fees, such as for first-time homebuyers, low-income households or people with disabilities. Some types of transactions could also be exempt, such as a sale from a parent to a child or a transfer between spouses in a divorce.
Mortgage Transfer Alternatives
If you don’t qualify for a mortgage transfer or it doesn’t seem quite right for you, there are other ways to potentially get out of your current mortgage.
- Refinancing your loan. With refinancing, you’ll pay off your old mortgage with a new loan, either with your current lender or a different one. Depending on your credit, this could get you a lower interest rate, which could save you money on interest and potentially help you repay your loan faster. Refinancing also allows you to shorten or extend your repayment term, switch from a fixed rate to an adjustable rate (or vice versa) or change mortgage lenders.
- Selling your home. Rather than transfer your mortgage, you can sell the home. You can then pay off your mortgage with the proceeds, and the buyer will assume responsibility for the home. You could also consider a rent-to-own agreement where a portion of the rent will go toward a down payment if the renter decides to buy the home.
- Transferring into a trust. After you eventually pass away, your estate will go through probate—the judicial process where your assets are distributed by the court-appointed executor. This will occur whether or not you have a will and can take anywhere from a few months to a year or longer. However, if you place your assets—such as your home—in a living trust, your beneficiaries won’t have to deal with probate, which can give you more peace of mind.
Be Careful with Unofficial Transfers
If you’re unable to transfer your mortgage, you might also be thinking about an informal arrangement where you simply leave your loan as is, continue making payments and have the buyer reimburse you.
But in most cases, this is a bad idea. Loan agreements generally don’t allow this, which means you could end up in legal trouble if your lender finds out. Additionally, you’ll still be responsible for the loan even though you won’t be living in the home—so if the buyer stops paying, you’ll be on the hook. Or if the home is foreclosed on and sold for less than what it’s worth, you could be liable to make up the difference.
Not everyone is eligible for a mortgage transfer and in some cases, it’s not the best option. Take some time to review all your options before completing a mortgage transfer.
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