“How to Transfer Your Mortgage: A Comprehensive Guide”

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In this Article:

• The Benefits of Transferring a Mortgage
• Can You Transfer Your Mortgage?
• How to Transfer a Mortgage to Another Borrower
• Mortgage Transfer Alternatives

The Benefits of Transferring a Mortgage

Transferring a mortgage allows the new owner to take over the existing loan with the same interest rate and monthly payments. The balance and number of remaining payments remain unchanged; only the legal responsibility for the mortgage shifts.

Reasons to transfer a mortgage include:

• Gifting the home to a family member or friend
• Divorce or separation
• Change of ownership due to death
• Selling the home

If your mortgage has a lower rate than current loans, transferring it can attract more buyers and potentially a higher sale price.

Can You Transfer Your Mortgage?

Government-backed loans, such as FHA, VA, and USDA loans, are generally assumable. However, there are specific requirements and restrictions:

• FHA loans: The lender must review and approve the buyer’s eligibility.
• VA loans: The lender must approve the transfer, and the buyer’s eligibility will be reviewed. If the buyer doesn’t qualify for a VA loan, you won’t regain your VA loan entitlement until the loan is paid off.
• USDA loans: Many are assumable, but the buyer may receive a new rate and term unless they meet creditworthiness and income limits.

Most fixed-rate conventional loans must be paid off when the home changes owners due to a “due on sale” clause. However, some adjustable-rate loans (ARMs) might be assumable, and there may be exceptions in certain circumstances, such as death, divorce, or transferring the mortgage to a trust.

How to Transfer a Mortgage to Another Borrower

Follow these steps if you’re interested in transferring your mortgage or selling your home with an assumable mortgage:

1. Contact the loan servicer: Ask if the loan is assumable based on your specific circumstances.
2. Gather necessary documents: Depending on the situation, you may need birth certificates, death certificates, marriage certificates, divorce decrees, wills, or trusts.
3. Work with your agent: Ensure your agent is familiar with assumable loans and includes this information in your home’s listing. Be prepared for a longer closing time, around two to four months.
4. The receiver applies for assumption: The person taking over the loan will need to apply with your lender, who will check their credit, income, outstanding debts, and employment.
5. The seller gets a release of liability: Ensure you get a release of liability to avoid being legally responsible for the mortgage after the transfer.

There may be fees associated with the mortgage assumption process, but they are often lower than the closing costs on a new loan. If selling the home, the buyer must cover the difference between the sale price and the remaining balance, possibly with a second mortgage.

Mortgage Transfer Alternatives

If transferring a mortgage isn’t feasible, consider these alternatives:

• Sell the home: Selling and splitting the proceeds might be easier if inheriting a home or giving it to multiple people.
• Rent the home: Renting out the home can help cover the mortgage payment if you can’t find a buyer.
• Refinance the mortgage: Refinancing to pay off the existing mortgage might make sense, especially if one person stays in the home after a divorce.
• Ask for assistance: Look into mortgage modifications or assistance programs if struggling with payments.

The Bottom Line

Mortgage assumptions are common after a death, divorce, or as part of an estate plan. They can also be attractive when mortgage rates have risen. Your credit remains important if you’re taking over a mortgage or in the market for a new home. Get your credit score and report for free from Experian, and receive free credit monitoring with monthly updates and real-time alerts.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you with all your mortgage needs!

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