The Benefits of Transferring a Mortgage

Transferring a mortgage can be a strategic move for various reasons. When you transfer a mortgage, the new owner takes over the existing loan, maintaining the same interest rate and monthly payments. This can be particularly advantageous if the current mortgage has a lower interest rate compared to today’s rates.

Here are some scenarios where transferring a mortgage might be beneficial:

• Gifting the home to a family member or friend
• Divorce or separation
• Change of ownership due to the death of a joint owner or family member
• Selling the home

In the case of selling, a low-rate mortgage can attract more buyers and potentially fetch a higher price for the property.

Can You Transfer Your Mortgage?

Not all mortgages are transferable. Generally, government-backed loans such as FHA, VA, and USDA loans are assumable, but they come with specific requirements and restrictions:

• FHA loans: Assumable, but the lender must approve the buyer’s eligibility.
• VA loans: Assumable, but the lender must review and approve the buyer’s eligibility. If the buyer doesn’t qualify for a VA loan, the seller won’t regain their VA loan entitlement until the loan is paid off.
• USDA loans: Many are assumable, but the buyer may receive a new rate and term unless they meet specific creditworthiness and income limits.

Most fixed-rate conventional loans include a “due on sale” clause, requiring the loan to be paid off when the home changes owners. However, some adjustable-rate mortgages (ARMs) might be assumable, and there may be exceptions in certain circumstances such as death, divorce, or transferring the mortgage to a trust.

How to Transfer a Mortgage to Another Borrower

If you’re interested in transferring your mortgage, follow these steps:

1. Contact the loan servicer: Verify if the loan is assumable based on your specific circumstances.
2. Gather necessary documents: Depending on the situation, you may need birth certificates, death certificates, marriage certificates, divorce decrees, wills, or trusts.
3. Work with your agent: If selling, ensure your agent is familiar with assumable loans and includes this information in the listing. Be prepared for a longer closing time.
4. The receiver applies for assumption: The new borrower must apply with your lender, who will check their credit, income, debts, and employment.
5. Get a release of liability: Ensure you obtain a release of liability to avoid being legally responsible for the mortgage after the transfer.

There may be fees associated with the mortgage assumption process, but they are often lower than the closing costs of a new loan. If selling, the buyer must cover the difference between the sale price and the remaining loan balance, potentially through a second mortgage.

Mortgage Transfer Alternatives

If transferring a mortgage isn’t feasible, consider these alternatives:

• Sell the home: Selling and splitting the proceeds might be easier, especially if inheriting a home or giving it to multiple people.
• Rent the home: Renting out the home can help cover mortgage payments if finding a buyer is challenging.
• Refinance the mortgage: Refinancing to pay off the existing mortgage might be a better option, particularly in cases of divorce where one person remains in the home.
• Ask for assistance: If struggling with payments, explore mortgage modifications or assistance programs.

The Bottom Line

Mortgage assumptions are common in cases of death, divorce, or estate planning, but they can also be attractive when mortgage rates rise. If you’re considering transferring a mortgage or exploring alternatives, O1ne Mortgage is here to help. Contact us at 213-732-3074 for expert guidance and personalized mortgage services.