Buzz
Is it possible to pass your home loan onto someone else? While this could be a convenient option—say, if you're selling your home, the buyer could assume your mortgage as part of the deal—this would eliminate the need for them to apply for a new loan and incur additional closing costs. Unfortunately, mortgage transfers are generally not allowed, but there are some exceptions to consider.
Why Mortgage Transfers Are Generally Not Allowed
When it comes to mortgage transfers, what's beneficial for you may not be favorable to the lender. One major reason someone might want to take on an existing mortgage is to benefit from a low, fixed interest rate—especially if it's significantly below the current market rates (though with current historic lows, as noted by Bankrate.com, this may not apply).
In order to avoid this, most mortgage agreements include a 'due-on-sale' clause, which requires the loan to be paid in full when the home is sold; the buyer must secure a new mortgage.
Assumable loans are the exception to the norm
If the loan agreement specifies that the loan is assumable, you can transfer the responsibility of the loan to a new owner—either with or without releasing the original borrower from liability. The new owner assumes the remaining payments, current interest rate, repayment term, and outstanding principal balance. (If the loan agreement doesn't clearly state whether the loan is assumable, it is generally assumed to be in most states).
Although most loans are not assumable, government-backed loans such as those from the VA, FHA, and USDA are exceptions. These loans may still require lender approval based on the creditworthiness of the new borrower, according to Lending Tree.
If you're unsure whether your mortgage is assumable, get in touch with your lender to confirm, and ask if there are any fees related to transferring the mortgage.
Other exceptions
There are situations where a mortgage transfer may be allowed, and in those cases, the lender will be legally unable to enforce the due-on-sale clause. These situations include:
Death of a spouse, joint tenant, or relative
Being named as a beneficiary in a living trust
Transfers between family members, including the borrower’s spouse or children
Divorce, where an ex-spouse continues to reside in the home
In such cases, the individual relinquishing ownership will sign a quitclaim deed to transfer the property.
When it makes sense to transfer a mortgage
The current mortgage rate is more favorable than what’s offered by lenders today.
A family member of the borrower has a stronger financial standing and is able to assume the loan.
The mortgage could be an attractive selling point for potential homebuyers, particularly if the terms are advantageous.
