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Transferring a Mortgage: A Comprehensive Guide

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. The balance and number of remaining payments remain unchanged; only the legal responsibility for the mortgage shifts.

Common scenarios for transferring a mortgage include:

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

Transferring a mortgage can be particularly appealing if your current mortgage rate is lower than the prevailing rates, potentially attracting more buyers and a higher sale price.

Can You Transfer Your Mortgage?

Whether you can transfer your mortgage depends on the type of loan and the buyer’s creditworthiness. Government-backed loans, such as FHA, VA, and USDA loans, are generally assumable, but they come with specific requirements:

• 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, you won’t regain your VA loan entitlement until the loan is paid off.
• USDA Loans: Assumable, but the buyer may receive a new rate and term unless they meet the 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 hands. However, some adjustable-rate mortgages (ARMs) might be assumable, and there may be exceptions in cases of death, divorce, or transfers to a trust.

How to Transfer a Mortgage to Another Borrower

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

1. Contact the Loan Servicer: Verify if the loan is assumable based on your 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: Ensure your agent is familiar with assumable loans and includes this information in your home’s listing.
4. The Receiver Applies for Assumption: The new borrower must apply with your lender, who will review their credit, income, debts, and employment.
5. Get a Release of Liability: Ensure you obtain a release of liability to avoid remaining legally responsible for the mortgage.

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 home, 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 simpler, especially if multiple people inherit the home.
• Rent the Home: Renting out the home can help cover mortgage payments if you can’t find a buyer.
• Refinance the Mortgage: Refinancing to a new mortgage might be beneficial, particularly in cases of divorce or if better loan terms are available.
• Ask for Assistance: Look into mortgage modifications or assistance programs if you’re struggling with payments.

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 a mortgage transfer or need assistance with your mortgage, contact O1ne Mortgage at 213-732-3074. Our team of experts is ready to help you navigate your mortgage needs.

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