Although some mortgage loans are assumable and thus easy to transfer, most conventional mortgages aren’t – but there are alternatives.
Depending on your circumstances, your lender may approve a mortgage transfer in the event of death, divorce, or other extraordinary situations. The process is lengthy, though, so be prepared for some legwork.
Instead of transferring a mortgage, you can refinance, sell the property, or add a borrower to the original loan.
Life is unpredictable, and even well-developed, long-term plans fall prey to unforeseen circumstances and unexpected events. In many cases, the longer the period in question, the more likely it is to be disrupted by outside forces – like a 30-year mortgage affected by a loved one’s passing, a divorce, or other emergency circumstance that forces you to explore whether you can transfer a mortgage to another person.
Whether you’re the primary borrower or want to take over someone’s mortgage, the underlying reasons supporting a mortgage transfer loan to another person are varied and complex. But, in most cases, the possibility and processes involved in transferring a loan to another person are black and white.
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What is a Mortgage Transfer?
A mortgage transfer seems self-explanatory, but many overlook the phrase’s nuance. A mortgage transfer is more than just moving a loan balance from your name to another’s.
Remember the complexity of your mortgage agreement and terms – you underwent extensive credit checks and likely provided documentation like paystubs, past tax filings, and more. Your mortgage lender took all that information, ran it through their systems, and generated mortgage terms based on your credit profile and perceived risk.
Because a mortgage transfer involves a new third party, lenders aren’t typically keen on assuming the risk involved in hoping an unvetted borrower will comply with terms custom-made for the original borrower.
Furthermore, mortgage interest rates depend on central banking rates, and ever-changing monetary policy means constantly adjusted mortgage rates.
Consider the past decade’s average mortgage rates. If your mortgage originated in 2014 at 4.5%, your lender would likely prefer refinancing or issuing a new mortgage (more on that soon) at today's higher rate instead of passing on your low-rate loan to someone new.
Likewise, if you originate a loan today and try to transfer the loan to another person in five years when rates are (hopefully) lower, the creditor won’t be keen to give up a 7% mortgage for something less!
In most cases, transferring a mortgage to another person is rare because lenders have substantial leverage over buyers, and very few circumstances benefit a loan servicer during a mortgage transfer.
But it isn’t impossible, either.
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Can I Sign My Mortgage Over to Someone Else?
To find out whether you can transfer your home loan to another person, you’ll need to examine your original mortgage terms. If the original agreement explicitly states that the loan is an assumable mortgage, you should be able to offload the loan to a third party easily.
Unfortunately, your typical 30-year mortgage won't be an assumable loan. Instead, assumable loans usually fall under a unique classification. In most circumstances, they're government-backed loans and typically include:
- Federal Housing Administration (FHA) loans that help lower-income borrowers realize their homeownership dreams.
- US Department of Agriculture (USDA) loans that fall under the USDA’s Rural Development program, typically within low-population areas.
- Veterans Affairs (VA) home loans that thank qualified veterans for their service by partnering with private lenders to offer mortgage loans with no down payment or credit score requirements.
But fear not – even if your mortgage doesn't fall under these categories, you may be able to transfer the loan to someone else. You'll need to talk to your loan servicer, but lenders sometimes work with borrowers to transfer a mortgage under unique, one-time circumstances, including:
- As part of a divorce/separation agreement or settlement.
- Upon the original borrower’s death, particularly if the new mortgage applicant is a joint tenant of the property or related.
- The loan is packaged within a living trust or similar legal framework.
- On a case-by-case basis, as a necessary transfer to a child or spouse.
Of course, without an explicitly assumable mortgage, the new borrower in the transfer of a mortgage must meet your lender's requirements, including creditworthiness and risk level. Likewise, the new borrower must be added to the property's deed if not included, and the original borrower may have to be removed from the property. Circumstances for the latter vary and could include a simple deed transfer in the event of borrower death or may demand more complex legal wranglings like a quitclaim deed.
How to Transfer a Mortgage
If you're weighing your options and exploring the possibility of transferring your mortgage to another person, you'll need to run some initial due diligence:
- Review your mortgage terms: dive into your original agreement to ensure you (and the prospective transferee) know and understand the details. Important terms include:
- Whether the mortgage is assumable.
- The mortgage’s interest rate, remaining term, payoff balance, and monthly payment amounts.
- The mortgage type, i.e., whether its government-backed like those explored above, a fixed-rate or adjustable-rate loan, or even a balloon mortgage (although that’s rare).
- Whether transferring will incur penalties or fees.
2. Check with your lender: Once you understand the mortgage's terms and conditions, contact your lender to explore mortgage transfer options.
If you're past the initial due diligence phase or already engaged with a lender for home loan transfer approval, here's what the process may look like:
3. Qualify: The new borrower must qualify for the mortgage lender's borrowing terms, including creditworthiness and income verification.
4. Negotiate: Depending on who the current borrower is, discuss terms with the mortgage holder and the lender to determine whether there is any flexibility to adjust existing terms during the transfer process.
5. Get the mortgage transfer approved: When you're ready to pull the trigger on transferring a mortgage loan to another person, submit the documents your lender provides to request the transfer formally.
Once the lender approves a transfer, you aren’t done yet. You’ll still need to:
6. Pay fees or penalties: If your original agreement included stipulations on financial costs associated with transferring a loan to another person, you'll need to pay those fees or penalties before proceeding.
7. Close the transfer: In many ways, this looks like your original borrowing process – you'll receive, review, and sign paperwork. Depending on your location, you may also need to work with property inspectors, title companies, and homeowner's association (HOA) management boards to finish the process.
8. Transfer everything related to the mortgage: The mortgage isn't the only thing you'll need to transfer to someone else. Depending on the transfer type and terms, you'll need to work with the home insurer, property tax body, and the HOA to close the deal.
Finally, ensure the new borrower keeps a close eye on monthly payments and meets the transfer’s agreed-upon terms.
To caveat all the above, remember that individual circumstances vary. It's best to consult with legal representation before and during the process to ensure you comply with local laws and regulations.
Transferring a Mortgage to a Family Member
There are some cases where you can transfer a mortgage with a due-on-sale clause. Transfers between family members are usually allowed, and your lender can always be more generous. In spite of lenders stating that it is not possible, an attorney can help you determine whether your bank is providing you with accurate information.
What are Transfer Taxes on a Mortgage?
You may incur real estate taxes when you transfer a mortgage loan, depending on your state of residency or where the property is. These taxes typically apply to standard real estate transactions, like buying and selling, but could sometimes apply to a mortgage transfer.
Consult with a tax professional to determine if your locality will tax the transfer, but expect to pay a flat, fixed fee, or a variable tax based on the property's value.
Mortgage Transfer Alternatives
Of course, there are alternatives if you're interested in transferring a loan to another person but don't qualify for a mortgage transfer under standard conditions. You can consider:
Mortgage Refinancing: In most cases, refinancing the mortgage is the fastest way to transfer a mortgage. When you refinance the existing mortgage, you'll source a new lender (or work with the current servicer) to pay off the existing mortgage by opening a new loan. Refinancing also lets you tweak the mortgage terms in most cases, but there are downsides, too. When you refinance and add a borrower, you may incur a higher interest rate on the loan or pay a slew of origination, inspection, and closing fees typical of most real estate transactions.
Selling Your Home: Instead of refinancing, particularly when the original borrower wants their name off the loan completely, you can sell the property to the new borrower. As with refinancing, the mortgage's terms will change from the original agreement, and you'll likely pay costs beyond basic mortgage payments.
Adding a Borrower: If circumstances allow the original borrower to remain on the loan, adding a borrower to your mortgage isn't a complex process. You'll still subject the new borrower to standard lending due diligence practices, like a credit check and income verification. However, standards are slightly less stringent in most cases since the original borrower is still liable for the mortgage loan.
Transferring a mortgage to another person might seem like a no-brainer when life throws you a curveball, but the reality is more complex. Transferring a loan is only a sure thing in specific, niche circumstances. That isn't to say there's no hope, but you're subject to your lender's whims if your mortgage isn't assumable and you want to transfer the loan to another person.
Still, it’s a viable option to consider if your situation warrants it – just be sure to consult with your tax, legal, and lending professionals before betting the bank on a mortgage transfer.
Can I take over a mortgage from my parents?
While it isn't a sure thing, some lenders can transfer a mortgage to the borrower's children, primarily if extenuating circumstances exist. Check with your lender to see if this is a viable option.
Why would a bank transfer a mortgage?
Banks sometimes initiate a mortgage transfer on their own, particularly in the case of extraordinary events like death, divorce, or when the loan is part of a living trust.
Can I transfer a mortgage if I’m self-employed?
All of the above mortgage transfer details apply if you’re self-employed – but remember that, depending on the circumstances of your self-employment, securing a mortgage when self-employed is often more difficult and demands greater engagement with the lender (proof of income, etc.).