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In certain situations, such as a divorce or the death of a loved one, you may 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 if you can port your mortgage and if you qualify, here’s what to know.
What is a mortgage transfer?
A mortgage transfer involves transferring your existing home loan, including its current interest rate and terms, to another person. This allows the other person to take 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?
Although you cannot transfer your mortgage in most cases, you may be able to do so 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 home buyer would simply take over the seller’s existing loan, and the current rate, terms and balance would remain the same.
Loans backed by the Federal Housing Administration (FHA), US Department of Agriculture (USDA), and Department of Veterans Affairs (VA) are generally eligible. Conventional mortgages, on the other hand, are generally not assumable. Instead, conventional mortgages usually come with a sell-due clause, meaning the loan must be repaid if you want to transfer title.
Even with an assumable loan, the buyer will still need to meet the lender’s qualifications to be eligible. This usually means completing an application, undergoing a credit check, and providing documentation, such as income and employment information. On the plus side, a home appraisal is usually not necessary, although it is always a good idea for the buyer to have the property inspected for any repair issues.
Sometimes a mortgage can be transferred even if it is not assumable – and a lender can also choose to be more generous and allow transfers on a case-by-case basis. For example, a transfer may be authorized if:
- You want to transfer the loan to a spouse, child or other relative.
- You are going through a divorce or separation.
- The original borrower dies and the loan must be transferred to a roommate or surviving relative.
- The loan is transferred to a between alive trust (also known as master trust) of which the borrower is the beneficiary.
As with an assumable loan, taking over another type of loan means that the new borrower must still meet the requirements set by the lender. Eligibility criteria may vary by lender, but will likely include a credit and income check to ensure the new borrower is creditworthy and can afford to repay the loan.
How to transfer a mortgage
If your loan is eligible and you wish to transfer it, you must follow several steps.
- 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 an exigibility clause and you do not fall under special circumstances, you probably will not be able to continue.
- Request a transfer. Contact your lender to initiate the transfer. Requirements vary by lender and type of loan. For example, if you have an FHA loan, you will need to submit a “liability waiver” form, and the new owner will need to meet credit criteria. Or if you have a VA loan, you will need to be current on payments and submit a liability release form, and the buyer will be subject to a credit check.
- Consider additional help. You may want to hire a lawyer to make sure the transfer goes as smoothly as possible, especially if it’s a divorce, inheritance, or co-ownership. Otherwise, follow the process outlined by your lender.
- Complete the transfer. Be sure to follow the process outlined by your lender. It usually takes at least 45 days for the loan to be processed and for the credit check to be completed. Continue to make your loan payments in the meantime until you are notified that you are no longer responsible for the loan. Remember that even one late payment could hurt your credit and cause you to become delinquent on your mortgage – and there’s always a chance the transfer won’t be approved – so don’t take any chances.
What are transfer duties on a mortgage loan?
Most states levy a real estate transfer tax whenever real property, such as a home, is sold or transferred. These are one-time fees that are paid, usually at closing, before the deed is signed. Townships, boroughs, cities and counties may also charge these taxes.
The party responsible for paying these taxes varies by location; it can be the buyer, the seller or both. The rate is also different depending on where you live.
In some situations, jurisdictions may reduce or waive these fees, such as for first-time home buyers, low-income households, or people with disabilities. Certain types of transactions could also be exempt, such as a sale from a parent to a child or a transfer between spouses during a divorce.
Mortgage Transfer Alternatives
If you don’t qualify for a mortgage transfer or it just doesn’t seem right, there are other ways to get out of your current mortgage.
- Refinance your loan. With refinancing, you will pay off your old mortgage with a new loan, either from your current lender or from 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 pay off your loan faster. Refinancing also allows you to shorten or lengthen your repayment period, to switch from a fixed rate to an adjustable rate (or vice versa) or to change mortgage lenders.
- Sell your house. Rather than transferring your mortgage, you can sell the house. You can then pay off your mortgage with the proceeds, and the buyer will take responsibility for the home. You can also consider a lease-to-own agreement in which part of the rent will be used to pay a deposit if the tenant decides to buy the house.
- Transfer to a trust. After your death, your estate will go through probate – the court process where your assets are distributed by the court-appointed executor. This will happen whether or not you have a will and it can take anywhere from a few months to a year or more. However, if you place your assets, like 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 may also be considering an informal arrangement where you simply leave your loan as is, keep making payments, and ask the buyer to pay you back.
But in most cases, that’s a bad idea. Loan agreements usually don’t allow this, which means you could be in legal trouble if your lender finds out. Plus, you’ll still be responsible for the loan even if you don’t live in the house. So if the buyer stops paying, you will be taken care of. Or if the house is seized and sold for less than it’s worth, you may be required to make up the difference.
Not everyone qualifies for a mortgage transfer, and in some cases it’s not the best option. Take the time to consider all of your options before making a mortgage transfer.
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