Can You Transfer a Home Loan to Another Person
Transferring a home loan is also colloquially known as a mortgage transfer, or loan assumption. It helps in numerous situations: whether it is changing the ownership of a house due to some family problem, financial crisis, or merely selling a house. But can you actually transfer a home loan to some other person? Yes, but mostly it works on the type of mortgage taken and on the lending bank’s policies.
Mortgage Transfer
A mortgage transfer is a process where the original borrower assigns his or her existing home loan to another individual. This way, the new borrower gets the responsibility of repayments with the same terms under which he or she would have borrowed if they had applied for a loan-new; likewise, the interest rate and remaining balance. For several homeowners, this attraction of mortgage transfer lies in the option of escaping the slightly higher interest rates prevalent in the market today.
Types of Mortgages
Assumable Mortgages
Such are loans, which allow a new borrower to take over the existing mortgage without the need to acquire a new loan. The most common assumable mortgages include:
VA Loans/USDA Loans
In the case of VA loans, backed by the Department of Veterans Affairs, like FHA loans, they can usually be assumed, but often require lender approval. USDA Loans from the U.S. Department of Agriculture may also frequently be assumed, depending on lender approval.
Conventional Mortgages
Most conventional loans are not assumable with the due-on-sale clause. The due-on-sale clause states that the loan is due in full if it is sold or transferred. However, this may apply to most, but there are some exceptions made under specific circumstances.
Transfer Exceptions
Even if a mortgage is not typically assumable, lenders may grant a transfer under certain conditions. These can include:The loan might become available to a surviving spouse or other relative if a borrower dies.If a couple divorces, a spouse might inherit the mortgage as well if she or he has decided to stay in the house. It is possible to transfer a loan to a family member, such as a child.When a mortgage holder puts his or her property in the living trust, then that will be the new borrower for the mortgage.
Advantages of Mortgaging Transfer
Transfer of mortgage has advantages for the original owner and the new owner of the mortgage: Avoid Foreclosure: Transfer of mortgage can help a homeowner facing trouble in payment to a family member or friend avoid foreclosure.
Lower Interest Rates
In case the old mortgage interest rate is lower than the current prevailing rates, the new borrower enjoys low monthly payments.
Transaction easy
When the householder transfers his mortgage instead of applying for a new loan, both parties save on closing costs and paperwork.
How to Transfer a Mortgage
If you feel your mortgage qualifies for transfer, follow the following steps:
Check Your Mortgage Agreement
Check your loan documents to see if your mortgage includes a due-on-sale clause or if it’s assumable.
Contact Your Lender
Contact your lender to see if it is possible to transfer your mortgage. They’ll let you know what has to be done and what the requirements are.
Gather Documentation
Depending on the reasons that bring you to transferring your mortgage, you may need a death certificate, divorce decree or trust documents.
Mortgage assumption process
This may involve carrying out credit checks and verifying their income.
Get a Release of Liability
Once your transfer is approved, ensure that you get a release of liability from your lender indicating that you are no longer liable for the mortgage.
Possible Problems
Transferring one’s mortgage is helpful but brings along problems in such a case:
Lender Approval: even if the loan is assumable, the lender must approve the new borrower, and thus there might be a more stringent application process.
On costs and fees
Though generally lower than that for a new mortgage, some fees do come with the transfer.
Alternatives to Mortgage Transfer
If transfer of mortgage cannot be done, then here are the alternatives.
Selling the Property
The original borrower may sell the house and pay off the mortgage. This may be simpler when more heirs or beneficiaries are involved.
Refinancing
The original borrower may refinance the mortgage in the name of the new owner and secure different terms on new loans.
Adding a Co-Borrower
Instead of an absolute transfer, you can add another borrower to the mortgage. This enables the new borrower to begin adding toward the payments, but the original borrower remains liable.
Renting the Property
If it’s possible to sell is not an option, renting out the property is a way of covering mortgage payments until it is possible to find a better solution.
Conclusion
Transferring a home loan to another person can be done under specific conditions, mainly for government-backed loans. This will, however, require some careful considerations and consultations with your lender. The first step is to get knowledge about the type of mortgage you have and the requirements in transferring it. Taking the right steps can thus mean going through the whole process without hindrance, an advantage, not only to the original borrower but also to the new one. In this case, go for professional help in order to achieve smooth transfer.