Can You Transfer a Mortgage to Another Person? A Homeowners Guide

How does a transfer of mortgage work?

Transferring a mortgage involves a series of steps. Here’s what you can typically expect in the process:

1. Review your mortgage terms: First, check your mortgage agreement to confirm if your loan is assumable. Look for any clauses related to transferring the mortgage.
2. Contact your lender: Reach out to your mortgage lender to discuss the possibility of a transfer. They will provide specific requirements and procedures.
3. Find or identify a qualified buyer: The person you’re transferring the mortgage to must qualify under your lender’s criteria, which usually involves credit and income checks.
4. Gather necessary documentation: Both parties will need to provide various documents, such as proof of income, credit reports, and identification.
5. Complete the assumption agreement: This legal document outlines the terms of the mortgage transfer. Both parties must agree and sign it.
6. Undergo lender review: The lender will review the assumption agreement and the new borrower’s qualifications. This process might take some time.
7. Pay assumption fees: There are usually fees associated with transferring a mortgage. These vary depending on the lender and loan type.
8. Close the deal: Once approved, a closing date is set. At closing, the transfer is finalized, and the new borrower assumes responsibility for the mortgage.
9. Update property records: Finally, ensure that property records are updated to reflect the new mortgage holder. This step is important for legal and tax purposes.

“You can pretty much do any price range,” says Broesamle, who works with 74% more single-family homes than the average agent in his Mount Clemens market. “You’re not going to have a specific price point that’s really going to hold you back with an assumable mortgage.” But he adds that the person you are transferring the mortgage to must be able to qualify for the remaining loan amount.

If my loan is transferred, am I clear of the loan debt?

A key concern for sellers considering a mortgage transfer is whether they’ll be completely free from the loan debt after it’s completed. The answer in most cases is yes. When handled correctly and thoroughly, or with the help of a professional service, assuming a loan relieves the original borrower of the debt responsibility.

The proper process will include getting a “release of liability” from your lender. This legal step removes your obligation for the mortgage once the new borrower assumes it.

It’s crucial to consult with your lender for detailed information on obtaining a complete release from your mortgage debt in an assumption. Also, consider seeking advice from legal or financial advisors to ensure your interests are safeguarded. There are also new products and programs entering the market to help walk buyers and sellers through the assumption process.

What might prevent me from transferring a mortgage?

Transferring a mortgage isn’t always straightforward. Several factors could impede this process:

• “Due on sale” clause: Many mortgages, especially conventional loans, include a “due on sale” or “due on transfer” clause, requiring the full loan balance to be paid when the property is sold or transferred. (More on this below and when there might be exceptions to this rule.)
• Lender’s approval requirements: Even if your mortgage is assumable, the new borrower must meet specific credit and income standards set by the lender.
• State and local laws: Some jurisdictions have specific regulations that might affect mortgage transfers.
• Loan type: As discussed earlier, not all mortgage types are assumable. Conventional loans, for example, are typically not transferable.
• Financial instability of the new borrower: If the new borrower does not have a stable financial background or a good credit score, the lender might reject the transfer.
• Outstanding liens or judgments: Existing liens or judgments against the property can complicate the transfer process.

Broesamle says one of the most common obstacles in a mortgage transfer is the creditworthiness of the person assuming the mortgage. Even though it’s a transfer, “the person taking over the loan still has to get approved for it,” he explains. “Once they speak to the lender, we’ll know exactly what they’re approved for as well. After you’ve cleared that [hurdle], it’s definitely a valuable option.”

Special circumstances: Exceptions to a ‘due on sale’ clause

There are instances where a mortgage can be transferred even if it has a “due on sale” clause. In certain circumstances, lenders may show flexibility or the contract might allow exceptions. Here are some scenarios where a mortgage transfer might still be possible:

• Death of a spouse, other relative, or a joint tenant: In the event of the death of a spouse, a close relative, or a joint tenant, the mortgage can often be transferred to the surviving individual. This allows for the continuation of the mortgage under the new owner.
• Transfers between family members: A mortgage might be transferable in cases where it’s being passed on to immediate family members, including the borrower’s spouse or children. Lenders may be more accommodating in these family-related transfers.
• Divorce or separation agreements: If a couple is going through a divorce or separation, and one party is keeping the home, the mortgage might be transferable to the individual who will continue residing there. This arrangement is often detailed in the divorce or separation agreement.
• Living trust arrangements: When a borrower has a living trust in which they are a beneficiary, the mortgage can often be transferred into the trust without activating the “due on sale” clause. This is a common estate planning tool and allows the mortgage to be handled within the trust structure.

It’s important to note that while these exceptions can provide opportunities for mortgage transfer, they still require careful navigation and often involve legal and financial considerations. It’s recommended to consult with a legal or financial advisor to understand the specifics of your situation and to ensure compliance with all requirements.

When might a mortgage transfer be a good solution?

Mortgage transfers can be an effective solution in various situations. Understanding when it’s advantageous can help you make a more informed decision. Consider a mortgage transfer if:

• You’re going through a divorce, and one partner wishes to keep the family home.
• A family member is in a better financial position to handle the mortgage payments.
• You’re transferring property to your children as part of estate planning or inheritance.
• A relative or close friend is willing to take over the mortgage to prevent foreclosure.
• You’re relocating for work or personal reasons but want to keep the property in the family.
• A loved one has passed away, and you’re inheriting a property with an existing mortgage.
• You’re facing financial difficulties and need to reduce your debt responsibilities without selling the property.

Each of these scenarios presents a unique set of circumstances where transferring a mortgage could be beneficial, both financially and personally. It’s important to consider the long-term implications before proceeding.

What are mortgage transfer taxes?

Mortgage transfer taxes are state and local government fees imposed on the transfer of property ownership, including when a mortgage is assumed by someone else. These taxes can vary significantly depending on where the property is located, as each state and locality has its own rules and rates. Here are key points to consider about mortgage transfer taxes:

• Not universal: Not all states or localities impose mortgage transfer taxes. Be certain to check the specific regulations in your area.
• Varied rates: Where they do exist, the rates can range from a small flat fee to a percentage of the property’s sale price or mortgage amount.
• Paid at closing: Transfer taxes are typically paid during the closing process of the mortgage transfer.
• Potential exemptions: Some states offer exemptions or reduced rates under certain conditions, such as transfers between family members.

It’s advisable to consult with a real estate attorney or a tax advisor to understand the specific tax implications for your situation.

What if my mortgage is not transferrable? Are there alternatives?

If you find that your mortgage is not transferrable, don’t lose hope. There are several alternatives you can consider:

• Refinancing your loan: This involves taking out a new mortgage to replace the existing one. It can be a viable option if you’re looking for better terms or rates. The new loan could be in the name of the person you initially intended to transfer the mortgage to, assuming they qualify.
• Selling your home: If transferring the mortgage isn’t an option, selling the property is a straightforward way to move on. The proceeds from the sale can be used to pay off the existing mortgage. You might even consider a cash offer company.
• Transferring into a trust: Placing your property into a living trust can be a strategic move for estate planning. While this doesn’t transfer the mortgage in the traditional sense, it can help manage the property’s future.

Unofficial transfers: A risky alternative

Another option that some consider is an “unofficial transfer.” This arrangement involves keeping the mortgage in your name while having another person live in the property and reimburse you for the mortgage payments. However, this method comes with significant risks:

• Breach of mortgage agreement: Most mortgage agreements have clauses that prohibit unofficial transfers. If your lender discovers this arrangement, they could demand immediate full repayment of the loan or take legal action.
• Legal and financial risks: If the person living in your home stops making payments to you, you’re still legally responsible for the mortgage. This can lead to financial strain and potential foreclosure.
• Insurance and tax complications: Keeping the mortgage in your name while someone else lives in the property can lead to complications with homeowners’ insurance and property taxes.

Should I transfer a mortgage to another person?

Deciding whether to transfer a mortgage to another person is a significant decision that requires careful consideration of your financial situation, future plans, and the potential impact on all parties involved. Here are a few key points to ponder:

• Assess the benefits: Evaluate how a mortgage transfer could benefit you and the potential new borrower. Consider factors like interest rates, financial stability, and long-term commitments.
• Understand the potential risks: Be aware of the legal and financial risks associated with a mortgage transfer, especially if considering an unofficial arrangement.
• Review alternatives: Consider other options like refinancing, selling, or setting up a trust, particularly if the mortgage is not transferable.
• Consult professionals: For a financial transaction of this size, it’s always recommended to seek advice from real estate attorneys, financial advisors, and mortgage professionals.

Broesamle suggests that partnering with a top real estate agent can also be wise to streamline the entire process and provide tailored advice based on your unique circumstances.

“An agent can handle all the paperwork, getting them in touch with the right lender, the right title company that’s going to do the deal and do it seamlessly. It’s not going to stress them out,” he explains. “That’s the biggest thing for me, making sure that my client is comfortable and happy at the end of the process.”

Ultimately, transferring a mortgage can be a viable solution in certain situations, but it requires a thorough evaluation of the risks and benefits. Making an informed decision will help ensure that this financial move aligns with your long-term goals and provides a secure solution for all involved.

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