Can You Transfer a Mortgage to Another Person Without Refinancing?

Traditional transactions involve the purchase of a new loan by the buyer and the pay-off of the old loan by the sale proceeds to the seller. However, what if the existing loan could simply be transferred to the buyer? That is the essence of mortgage assumption, a procedure that can be very valuable to both parties, most notably during times of increasing interest rates. Can you transfer a mortgage to another person? This guide from BrickWood Mortgage will provide helpful insight.

Understand Mortgage Assumptions

A mortgage assumption transfers the amount paid for the purchase, the interest, the term that the mortgage is paid over, as well as the amount the seller still owes, to the purchaser. This is clearly different from refinancing. In refinancing, the purchaser gets a completely new loan to purchase the house. In an assumption, the original loan still exists, even if the responsibility to pay shifts from the seller to the purchaser.

This is also a very enticing deal when the original mortgage has a lower interest rate than the rates prevailing at the time. It is favorable to the purchaser since they receive lower borrowing rates, and the vendor can make the home more attractive to other purchasers. Can I transfer a mortgage to another person? Let’s dig deeper.

The Legal Environment: Due-on-Sale Clause

Most current mortgages include a “due-on-sale” clause. It entitles the lender to call the full amount of the loan if the residence is sold or transferred. It essentially prevents the vast majority of the loans from being assumed without the lender’s explicit permission. The lender will require the newcomer to qualify on credit, as well as income, just as they would the initial loan application.

Exceptions do occur. Government loan programs, including those sponsored by the FHA, VA, and USDA, are assumable as long as the lender qualification standards are met. Mortgages transfers due to some life situations, including a divorce or inheritance, sometimes also do not activate the due-on-sale clause, although this is instance-specific. If you are not sure where to start, consulting BrickWood Mortgage as a leading mortgage broker in South Carolina can help clarify your options.

Pros and Cons of Transferring a Mortgage

To the buyer, the biggest benefit of assuming the loan is that they may get a lower interest rate, saving thousands of dollars during the length of the loan. Another benefit is that the closing costs are usually less than if they obtain a new mortgage. The biggest drawback to the buyer is that they must come up with cash to cover the difference between the sale price of the home and the amount remaining on the mortgage. This could require a substantial down payment.

To the seller, presenting an assumable loan can differentiate their house during a competitive sale. It could result in a faster sale, even at a higher price. However, the seller should be careful. If the borrower who assumed the loan fails, some lenders will consider the original borrower responsible. It is important that the seller get a formal release of liability agreement from the lender so that they completely distance themselves from the loan. If you plan to transfer a mortgage to another person, such a release is essential.

Is a Mortgage Assumption Best for You?

Transferring a mortgage without refinancing is a possible alternative under certain circumstances, most notably with government loans or other significant changes in life. It provides an avenue where buyers benefit from desirable loan rates and sellers improve the marketability of their homes. 

It is, however, necessary to navigate the required legalities as well as gain the approval of the lender. Prior to this, both parties must review their situation with their lender and a real estate professional such as BrickWood Mortgage so that they know their rights and obligations.