When you sell a home, it may be the right time to transfer the mortgage to the new owner. Rather than looking for a new loan, paying closing costs, and beginning over with higher interest charges, think about taking over the current payments. Yes, it is possible to transfer a mortgage; however, it’s not always easy. You will get the options like transferring an assumable mortgage by requesting your lender to make the change, refinancing the loan in the new owner’s name, transferring when the situation demands a loan’s “due on sale” clause, etc.
Is It Possible To Transfer A Mortgage?
Assumable Mortgages
If a loan is assumable that means you can transfer the mortgage to anyone else. The loan agreement will not prevent you from completing a transfer. But assumable mortgages can be difficult to transfer. More often, the new borrower requires qualifying for the loan. For assessing the borrower’s ability to repay the loan, the lender will look at the borrower’s credit scores and debt to income ratios. The process is usually the same as if the borrower was to apply for a brand new loan. Lenders approved the original loan application based on the credit and income of the original applicant(s), will look for a replacement borrower who can repay.
Request the change with your lender to get assumable loan transfer completed. You’ll need to complete applications, verify income and assets, and pay some fee during the process. In the process of transferring ownership, change of names on a loan only affects the loan. You may still require changing who owns the property by transferring title or taking any other steps needed in your situation.
Difficult to Find
Yes, assumable mortgages are not easily available. Your good decision maybe if you have an FHA loan or a VA loan. Other conventional mortgages are not often assumable. Rather, lenders avail a due on sale clause that means the loan must be clear when you transfer ownership of the home.
Refinancing
When the loan is not assumable, refinancing the loan might be your right option. Like an assumption, the new borrower will require sufficient income and credit to qualify for the loan. The new homeowner will just apply for a new loan individually and avail that loan to clear the current mortgage debt. You should work with your lenders to get liens eliminated so that you can use the house as collateral, but it’s the right way to get the job done. Some liens usually transfer from one owner to another.
Due on Sale
Mortgage lenders will not benefit from allowing you to transfer a mortgage. Buyers will get a more mature loan, with the early interest payments finished. Sellers would be able to sell their house more easily and at a higher price, because of those same benefits. But lenders stand to lose, so they would be lazy to approve transfers. A due on sale clause says that the loan must be cleared when the property sells.
Exceptions to the rule
Sometimes you can still transfer a loan even with a due on sale clause. Transfers between family members are usually allowed. Ask your lender and review your agreement with a local attorney. Even if lenders say it’s impossible, an attorney can help you address if your bank is providing accurate information.
The Garn-St. Germain Act avoids lenders from exercising their acceleration option under some of the most common situations which include:
• When a joint tenant passes away and ownership transfers to a surviving joint tenant
• Transferring the loan to a relative after the death of a borrower
• A transfer of property ownership to the wife/husband or children of a borrower
• Transfers as a result of divorce and separation agreements
Unofficial Transfers
If you can’t get your request approved, you might think of selling your house, leaving the existing loan in place, and having the buyer reimburse you for mortgage payments. This is the wrong decision. Your mortgage agreement will not allow this, and you might even find yourself in legal trouble. Moreover, you still require paying off the loan — even though you’re no longer living in the house. Another possibility is if the buyer stops paying, the loan is in your name, so it’s still your problem.
Your Options
Based on your situation, death, divorce, and family transfers might help you make transfers. And certain government programs make it easier to deal with the mortgage — even if you’re unemployed. Eventually, refinancing is your final option when none of the other options are available.
