Can you transfer a mortgage to someone else?

An assumable mortgage lets you transfer the interest rate and terms

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In some instances, a homeowner may want to transfer their existing mortgage to a new borrower. Perhaps the new borrower wants to secure a low interest rate that was previously locked in, or the existing homeowner wants to transfer their mortgage to a family member.

But it’s only possible to transfer a mortgage in very specific circumstances.

We’ll cover the details of which home loans qualify for a mortgage transfer, how the process works and some alternatives.


Key insights

Assumable mortgages qualify for a mortgage transfer. Most other mortgages do not.

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Assumable mortgages are typically backed by a government entity.

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The new borrower will still need to qualify to assume the existing mortgage.

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What is a mortgage transfer?

A mortgage transfer happens when the original borrower moves the mortgage to a new borrower's name and responsibility. It's not a simple process, and not all mortgages can be transferred. Mortgage transfers are typically done when a borrower dies or when one spouse wants to keep the family home in a divorce.

» MORE: Mortgagor vs. mortgagee

When can you transfer a mortgage?

Transferring a mortgage is only available with certain loan products and in specific conditions. You can transfer an assumable mortgage, or you can transfer a conventional mortgage under special circumstances.

1. If you have an assumable mortgage

“Assumable mortgages are loans that can be transferred from the seller of a property to the buyer, who assumes responsibility for the mortgage terms and continues making the mortgage payments,” explained Michael Borodinsky, manager of Caliber Home Loans’ branch in Bridgewater, New Jersey. “The qualifications for assumable mortgages vary depending on the specific terms set by the lender and the type of mortgage involved.”

Assumable mortgages are typically backed by government entities, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA).

Most conventional mortgages are not assumable and come with a “due-on-sale” clause that requires the mortgage to be paid in full if the borrower transfers the home to a new owner.

Even if a mortgage is assumable, the new borrower needs to qualify for the existing mortgage terms before assuming the loan. This means they would need to go through a credit check and provide financial documentation for the loan.

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2. If you’re facing special circumstances

Nonassumable mortgages can be transferred to a new borrower under special conditions. This requires working directly with the lender to understand what options are available.

Some circumstances that might permit the transfer of a nonassumable mortgage include:

  • The mortgage is transferred to the borrower’s spouse or child.
  • The mortgage is transferred to a surviving relative or beneficiary upon the death of the borrower.
  • One ex-spouse continues to live in the home following a divorce.
  • The mortgage moves into a primary trust in which the borrower is a beneficiary.

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How a mortgage transfer works

Most mortgages cannot be transferred, which might leave some buyers looking for a workaround. And while it may be tempting to just unofficially transfer responsibility for the payments while the home is still in the original borrower’s name, this is a bad idea. If an unapproved transferee misses payments, the legal mortgagor’s credit score will be damaged.

A mortgagor should not allow someone to move into their home and take on mortgage payments under their name, as this is a massive liability issue.

However, if you are eligible to proceed with a mortgage transfer, here’s how to do it:

Review the loan agreement
Review your current mortgage agreement to ensure that a mortgage transfer is even possible. If the loan is a nonassumable mortgage, you’ll likely need to meet (or set up a call) with the lender to ensure you qualify for special consideration to transfer the loan.
Hire an attorney
Even though most lenders with assumable mortgages have a transfer process to follow, it’s always best to consult legal counsel when transferring a loan. If the mortgage transfer involves a divorce or estate, it’s best to involve an attorney as soon as possible to ensure a smooth transition.
Request a mortgage transfer
Once you have all the details of the loan transfer ironed out with your lender and attorney, you’ll formally request a loan transfer from the lender. The requirements for transferring a mortgage vary by loan type, so you’ll need to follow the process as required by your specific lender.

There may be mortgage transfer fees that need to be paid to close on the loan, so be sure to ask the lender about those before completing the process.

Submit financial details
Most mortgage transfers require the new borrower to apply for the loan to qualify. This will work similarly to any mortgage application. The buyer will submit an application, have their credit checked and provide all financial documentation, such as pay stubs or tax returns.
Complete mortgage transfer
The mortgage transfer process can take a while, so the original borrower should continue to make on-time payments while the transfer is completed. Once the credit check is completed and the lender transfers the loan, the new borrower will be able to assume payments and will be the new owner of the property.

Pros and cons of transferring a mortgage

Transferring your mortgage might allow you to pass on a lower interest rate and better terms to the new borrower. It can also potentially help the original borrower avoid foreclosure if financial struggles arise.

Conversely, the new borrower still needs to qualify for the loan to complete the transfer. While the new borrower is taking over your outstanding balance, it doesn’t change the debt obligation on the loan. They will be responsible for paying off the balance. Finally, you need to take steps to ensure the lender has released you from the debt; otherwise, if the new borrower fails to make payments, you can still be held responsible.

Pros

  • Potentially lower interest rate and better terms for new borrower
  • Potential fixed interest rate for new borrower
  • Avoids prepayment penalties and closing costs for new borrower

Cons

  • New borrower still needs to qualify
  • New borrower needs to pay the same outstanding balance
  • In rare cases, you can still be held financially responsible if the loan payments are not made

Alternatives to transferring your mortgage

Since a mortgage transfer is not available with many conventional mortgages, there are a few alternatives to consider.

  • Refinancing: Instead of transferring the mortgage, you might consider refinancing the property to get more favorable repayment terms. Depending on your credit profile, this could give you a better interest rate and the ability to shorten or lengthen your loan term.
  • Selling: You can sell the home and use the proceeds to pay off your current mortgage.
  • Adding a borrower: You might consider adding a borrower to your existing mortgage, assuming it’s a family member or trusted friend. This lets them help pay the mortgage, though it does not free you from the loan obligation should they stop making payments.
  • Renting out your property: If you're struggling to make mortgage payments but don't want to sell your home quite yet, you could consider renting out your property to generate rental income. This can help cover the mortgage expenses while still allowing you to retain ownership of the property.

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    FAQ

    What is a due-on-sale clause?

    A due-on-sale clause is added to most mortgages, and it states that the mortgage must be paid in full to transfer ownership of the property. This means you can’t simply transfer the loan to another person outside of a few special circumstances.

    Will I owe taxes on my mortgage transfer?

    You might owe property transfer taxes when you transfer a mortgage from one party to another. These taxes are usually assessed at the state, county or city level, depending on where you live. Transfer taxes may be a part of the closing costs associated with a mortgage transfer. These taxes will vary by location, so it’s important to check with the lender to understand the tax implications of a mortgage transfer.

    Can I add a co-borrower to my mortgage?

    Yes, in many cases, you can add a co-borrower to your mortgage. This allows the co-borrower to assume shared liability for the mortgage and make payments. But adding a co-borrower does not remove you from the mortgage or the responsibility for mortgage payments.

    Can a mortgage be transferred after the owner dies?

    Yes, federal law generally requires lenders to allow the assumption of a mortgage by designated beneficiaries in the borrower’s will after the borrower’s death. But beneficiaries are not obligated to assume the loan, and if they don’t make the required payments, the lender can sell the property if desired.

    Bottom line

    Mortgage transfers are available for most government-backed mortgages, like FHA, VA or USDA loans. But they’re not allowed for most conventional mortgages. A mortgage transfer requires formally requesting a transfer from the lender and completing an application to make sure the new borrower is qualified to assume the loan.

    Borodinsky explains that assumable mortgages can work, but you need to know exactly what you’re getting yourself into.

    “Ultimately, whether an assumable mortgage is a good or bad idea depends on the specific circumstances of the buyer and seller … Consulting with a mortgage professional or financial advisor can provide valuable guidance in assessing the suitability of an assumable mortgage in a particular situation,” he said.


    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. U.S. Department of Housing and Urban Development, “HUD 4155.1, Chapter 7. Assumptions.” Accessed June 27, 2023
    2. U.S. Government Publishing Office, "Rural Housing Service, USDA § 3550.163." Accessed June 12, 2023.
    3. U.S. Department of Veterans Affairs, "Rights Of VA Loan Borrowers." Accessed June 12, 2023.
    4. Consumer Financial Protection Bureau, "CFPB Clarifies Mortgage Lending Rules to Assist Surviving Family Members." Accessed June 12, 2023.
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