Can you transfer your home loan to another person? Doing so certainly could be convenient: if you’re selling your home, the buyer could just take on your mortgage as part of the deal, avoiding the hassle of a new loan application, not to mention the extra closing costs. As nice as that sounds, mortgage transfers are generally not possible—but there are a few exceptions worth knowing about.
Why you usually can’t transfer a loan
In the case of mortgage transfers, what’s good for you is not what’s good for the lender. One of the most appealing reasons for assuming a mortgage is to take advantage of a locked-in low interest rate, especially if it’s significantly lower than rates currently offered in the market (not that that’s likely to be the case right now, with rates at historic lows, according to Bankrate.com).
To prevent this, most mortgage contracts contain what’s called a “due-on-sale” provision, which ensures that a loan must be fully repaid when a home is sold; the buyer must obtain a new mortgage.
Assumable loans are the exception to the rule
If the initial paperwork states that the loan is assumable, however, then you can transfer the financial liability for the loan to a new owner—either with or without a release of the original borrower’s liability. The new owner takes over the remaining payment and keeps the existing loan rate, repayment period and remaining principal balance. (If the loan contract doesn’t explicitly say whether or not your loan is assumable, the loan is considered assumable in most states).
Most loans are explicitly not assumable. However, according to the Lending Tree, government-insured loans like VA, FHA and USDA loans are an exception—although they still might require lender approval based on your creditworthiness.
If you’re not sure whether your mortgage is assumable, contact your lender directly to find out (and ask if there any fees involved in a mortgage transfer).
Other exceptions
There are certain circumstances under which a mortgage transfer might be permissible, and your lender will be legally barred from enforcing the due-on-sale clause. These include:
Death of a spouse, joint tenant or relative
Being named a beneficiary in a living trust
Transfers between family members, including the borrower’s spouse or children
Divorce, after which an ex-spouse continues to live in the home
In these scenarios, a quitclaim deed will be signed by the owner who is relinquishing ownership.
When a mortgage transfer makes sense
The existing mortgage’s rates are lower than what’s available from lenders.
A family member related to the borrower is in better financial shape and is able to take on the loan
The mortgage can be used as an incentive for potential homebuyers, especially if the mortgage terms are favorable.