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You might be able to transfer your mortgage to someone else and allow them to take over the payments without changing the terms. However, your ability to do this can depend on the type of mortgage you have and the other person's creditworthiness. Some mortgages can only be taken over, or assumed, in special circumstances, and others have to be paid in full when the home changes hands.
The Benefits of Transferring a Mortgage
When you transfer a mortgage, the new owner will take over the existing loan and receive the same interest rate and monthly payments. The balance and number of remaining payments also stay the same—the only thing that changes is who is legally responsible for the mortgage.
You might want to transfer a mortgage when:
- You want to give the home to a family member or friend
- You're going through a divorce or separation
- The home changes owners because a joint owner or family member dies
- You're selling the home
The final point could be especially interesting if your mortgage has a much lower rate than today's home loans. You might be able to attract more buyers and a higher price if the buyer can take over your low-rate loan.
Can You Transfer Your Mortgage?
Loans are generally assumable when they're backed by the government. That includes Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans. However, there are some requirements and restrictions to keep in mind:
- FHA loans: FHA loans are assumable, but the lender will review the buyer's eligibility and might not approve the assumption if the buyer doesn't qualify for the FHA loan.
- VA loans: VA loans are assumable, but the lender will need to review the buyer's eligibility and approve the transfer. Anyone can assume the loan, but if the buyer doesn't qualify for a VA loan, you won't receive your VA loan entitlement back until they pay off the loan.
- USDA loans: Many USDA loans are assumable, but the buyer may receive a new rate and term unless they meet the creditworthiness and income limits for a USDA loan.
Most fixed-rate conventional loans have to be paid off when the home changes owners because of a "due on sale" clause in the contract. However, some adjustable-rate loans (ARMs) might be assumable. There also may be exceptions with conventional loans in certain circumstances, such as when there's a death in the family, divorce or if you want to transfer the mortgage to a trust.
How to Transfer a Mortgage to Another Borrower
Here are the steps to take if you're interested in transferring your mortgage or selling your home and want to advertise that you have an assumable mortgage.
- Contact the loan servicer. First, contact the loan servicer and ask if the loan is assumable if you're selling the home, or if it can be assumed based on your specific circumstances.
- Gather the necessary documents. Depending on why you're transferring the mortgage, you may need to have copies of a birth certificate, death certificate, marriage certificate, divorce decree, will or trust.
- Work with your agent. If you're selling the home, make sure you have an agent who is familiar with assumable loans and will include this information in your home's listing. Be prepared for a longer closing time as it may take around two to four months for the transfer to be completed.
- The receiver applies for assumption. The person taking over the loan will need to apply with your lender. Similar to applying for a new mortgage, the lender may check their credit, income, outstanding debts and employment.
- The seller gets a release of liability. If you're selling your home or transferring your loan to someone else, make sure you get a release of liability. Otherwise, you may still be legally liable for the mortgage even if someone else starts taking over the payments.
There may be some fees associated with the mortgage assumption process, but they are often lower than the closing costs on a new loan. If you're selling the home, the buyer will also need to be able to cover the difference between the sale price and the remaining balance.
For example, if you sell the home for $500,000 and you still owe $300,000 on the loan, the new owner will need a $200,000 down payment to assume the loan. Buyers who don't have enough cash might be able to cover the difference with a second mortgage, sometimes called a piggyback loan.
Mortgage Transfer Alternatives
You may have several alternatives to transferring a mortgage if you want to remove someone from a mortgage or don't want to assume the loan:
- Sell the home. Selling the home and splitting the proceeds might be easier if you're inheriting a home or want to give the home to multiple people.
- Rent the home. If you're struggling to find a buyer, you may want to rent out the home to help cover the mortgage payment.
- Refinance the mortgage. Taking out a new mortgage to pay off the existing one might make more sense in some situations. For example, if one person stays in the home after a divorce, they may want to refinance the mortgage to be solely in their name if they qualify for a loan with better terms.
- Ask for assistance. If you want to transfer the mortgage because you're struggling with payments, you can look into mortgage modifications or other types of assistance programs.
The Bottom Line
Mortgage assumptions may be most common after a death, divorce or as part of an estate plan. However, they can also be an attractive option for homebuyers when mortgage rates have risen. Your credit may still be important if you're trying to take over a mortgage or might be in the market for a new home. Get your credit score and credit report for free from Experian, and receive free credit monitoring with monthly updates and real-time alerts.