Can You Transfer the Mortgage to Someone Else?
Can you transfer a home loan to another person? This can certainly be convenient: if you are selling your home, the buyer can simply take your mortgage as part of the deal, avoiding the hassle of a new loan application, not to mention the additional cost of closing the deal. As good as that sounds, mortgage transfers are usually not possible, but there are a few exceptions to be aware of.
Why you can’t usually transfer a loan
In the case of mortgage transfers, what is good for you is not good for the lender. One of the most compelling reasons for deciding on a mortgage is to take advantage of a fixed low interest rate, especially if it is significantly lower than the rates currently offered in the market (not that this could be the case right now, with rates at historic lows). , according to Bankrate.com).
To prevent this, most mortgage contracts contain a so-called “pay-on-sale” clause, which ensures that the loan must be paid in full when the home is sold; the buyer must obtain a new mortgage.
Possible loans – an exception to the rule
However, if the original documents indicate that a loan is possible, you can transfer the financial liability for the loan to the new owner – with or without release from the original borrower. The new owner takes over the remaining payment and maintains the current loan rate, maturity and remaining principal. (Unless the loan agreement explicitly states whether your loan is prospective, the loan is considered prospective in most states.)
Most loans are clearly non-repayable. However, according to the lending tree, government-insured loans such as VA, FHA and USDA loans are the exception – although they may still require lender approval depending on your creditworthiness.
If you are unsure if a mortgage is possible, contact your lender directly to inquire (and ask if there are any fees associated with transferring a mortgage).
Other exceptions
There are certain circumstances in which a mortgage transfer may be permissible and your lender will be deprived of the legal right to enforce the sale clause. These include:
- Death of a spouse, joint tenant or relative
- Obtaining the status of a beneficiary in a living trust
- Transfers between family members, including the borrower’s spouse or children
- Divorce, after which the former spouse continues to live in the house
In these scenarios, the title deed will be signed by the owner who is giving up the title.
When a mortgage transfer makes sense
- The rates on existing mortgages are lower than those of the lenders.
- A family member associated with the borrower is in better financial condition and can take out a loan.
- Mortgages can be used as an incentive for potential home buyers, especially if mortgage terms are favorable.