Can you transfer your home loan to someone else? It could certainly come in handy: if you sell your home, the buyer could simply take your mortgage as part of the transaction, avoiding the hassle of re-applying for a loan, not to mention the additional closing costs. As nice as it may sound, mortgage transfers are usually not possible, but it are a few exceptions to be aware of.
Why you can’t usually transfer a loan
In the case of mortgage transfers, what’s good for you isn’t good for the lender. One of the most attractive reasons to take out a mortgage is to take advantage of a low, locked-in interest rate, especially if it is significantly lower than the rates currently offered in the market (this is probably not the case now, with rates at historic lows, according to Bankrate.com).
To avoid this, most mortgage contracts contain what is called a “due on sale” provision, which guarantees that a loan must be fully repaid when a house is sold; the buyer must get a new mortgage.
Assumable loans are an exception to the rule
However, if the original documents indicate that the loan is assumable, you can transfer the financial responsibility for the loan to a new owner, with or without release from the liability of the original borrower. The new owner takes care of the remaining payment and keeps the existing loan rate, the repayment period and the remaining principal balance. (If the loan agreement does not explicitly state whether or not your loan is insurable, the loan is considered assumable in most states).
Most loans are explicitly not assumable. However, according to the Lending Tree, government insured loans like VA, FHA, and USDA loans are an exception– although they may still require the approval of the lender depending on your creditworthiness.
If you’re not sure if your mortgage is assumable, contact your lender directly to find out (and ask if there are any fees associated with a mortgage transfer).
There are certain circumstances in which a mortgage transfer may be eligible, and your lender will be legally prohibited from applying the time limit on the sale. These include:
- Death of a spouse, roommate or parent
- Be named beneficiary of a living trust
- Transfers between family members, including the borrower’s spouse or children
- Divorce, after which an ex-spouse continues to live at home
In these scenarios, a waiver deed will be signed by the owner relinquishing ownership.
When a mortgage transfer makes sense
- Existing mortgage rates are lower than those offered by lenders.
- A family member related to the borrower is in better financial shape and is able to take out the loan
- The mortgage can be used as an incentive for potential buyers, especially if the mortgage terms are favorable.