Mortgage transfers: A complete guide

Own a home but you’re in the midst of a divorce? Battling through a financial hardship that’s making mortgage payments difficult? Want to remove a co-borrower from your loan, shift ownership of your property within your family, or make your residence easier to sell?

These are all good reasons to consider a mortgage transfer, which is different from a home sale or refinance. A mortgage transfer involves legally shifting the responsibility to repay an existing mortgage from one person to another.

Truth is, mortgage transfers are uncommon today because most home loans won’t qualify for one. But it’s worth exploring if and how you can legally transfer your home loan if you’re a good candidate. Read on to learn more about why and when transferring your mortgage to a new person is recommended and how to do so.

What is a mortgage transfer?

A mortgage transfer involves changing the borrower listed on an existing mortgage loan and transferring the debt from that borrower to another. The terms of the original loan will remain the same – only the names on the loan will change. A mortgage can only be transferred if it is assumable, which means that someone else can legally assume the obligation of the original borrower to repay the loan.

“A mortgage transfer involves reassigning a home loan from the original borrower to a new person – allowing that new person to take over the payments without a new loan,” says Corey Boller, a Chartered Financial Analyst and founder of Washington, D.C.-based Tempus Wealth Partners. “This process typically requires lender approval and can be beneficial in certain situations, such as when the new borrower can assume the existing loan’s lower interest rate than currently available rates.”

Keep in mind that a mortgage transfer is not the same as a refinance; that’s because you aren’t taking out a new loan to replace your original mortgage. A mortgage transfer is also different from a home sale, which involves transferring title and ownership of the property to another person.

Actually, if you want to transfer the mortgage repayment responsibility as well as ownership of your home, you may be able to accomplish both with a mortgage transfer. This option can come in handy in scenarios like inheritance, transferring a property to an adult child, and divorce – allowing the new owner/borrower to take over both the property and the existing loan. To transfer both at once, your mortgage must be assumable, your lender must approve the new borrower, a deed must be executed to convey the property, and you (the original borrower) will need to secure a release of liability to avoid future responsibility.

Another way to transfer your mortgage is to attempt to add a new co-borrower to the loan.

“Adding a co-borrower to an existing mortgage is similar to transferring a mortgage in that the new party is added to the mortgage and they become jointly responsible for repaying the outstanding mortgage balance,” says Florida attorney David Weisselberger. “However, this is a limited type of transfer because the loan terms remain the same, and there is no creation of a new mortgage loan. This is usually done in a situation where one borrower has a lower credit score and/or income, but they want to take advantage of the other borrower’s credit history and/or income to qualify for a mortgage.”

If you pursue a mortgage transfer by adding a co-borrower, keep in mind that this additional co-borrower usually has ownership rights to your property because their name will be on both the mortgage loan and the property’s title.

Whatever form of mortgage transfer you pursue, you will need approval from your lender. Lacking lender approval, transferring ownership and/or the mortgage can trigger a “due-on-sale clause.”

“This clause gives the lender the option to require immediate payment of the entire loan balance at the time of the transfer of the property,” notes Weisselberger. “It protects lenders against inheriting borrowers who do not have verified creditworthiness, as well as against allowing older mortgage loans with historically low interest rates to continue when market conditions may offer higher interest rates that result in higher profits for the lender. Unless the lender waives this clause or the mortgage is government-backed and assumable, the mortgage transfer cannot occur.”

How mortgage transfers work

Keep in mind that the transfer itself needs to be approved and done through your lender; you cannot draw up a separate legal agreement to complete the transfer. Additionally, the individual you want to transfer the mortgage to will need to qualify.

“The incoming borrower must fulfill the income, debt-to-income, and credit requirements set by the lender,” says Dennis Shirshikov, a professor of economics and finance at City University of New York/Queens College.

While popular government-backed loans – such as an FHA, VA, or USDA mortgage loan – are assumable, most conventional mortgage loans will not qualify for a mortgage transfer because of the due-on-sale clause.

The process of transferring a mortgage involves several steps, outlined next.

Steps to transferring your mortgage to another person

To properly transfer your mortgage to another party – whether it’s a conventional, FHA, VA, or USDA loan – prepare to complete the following common steps:

1. Check your loan documents. Read over your mortgage loan paperwork to confirm if your lender and loan allow for mortgage assumption.
2. Contact your lender. Validate that the loan is assumable and ask if both you and the new borrower candidate meet the lender’s requirements for eligibility.
3. Collect needed documentation. Gather items such as proof of earnings, recent tax returns, divorce decrees, and other applicable documents that can help you qualify.
4. Formally apply. The person assuming the loan will need to submit a completed loan assumption application, which is similar to a standard mortgage application.
5. Await an underwriting decision. The lender will carefully review the application, confirm the creditworthiness of the new borrower, and green-light the transfer if they are satisfied.
6. Sign the necessary paperwork. Both you and the new borrower will need to sign a legal agreement that officially transfers the mortgage repayment obligation to the new borrower.
7. Sign a release of liability. This will ensure that you, the original borrower, are legally clear of future loan repayment responsibility.
8. Receive updated loan documents. You and the new borrower will each receive a revised loan statement and proof of release of liability from the lender. Keep these records safely stored.
9. Ensure the property’s title is updated. The transfer should be recorded in public records that officially recognize the new borrower.

Mortgage transfer alternatives

Don’t qualify for a mortgage transfer, or not sure you want to go forward with this process? There are several other options you can consider, especially if you’re trying to transfer your mortgage because you can no longer afford the monthly loan payments. Here’s a breakdown of your alternatives.

Refinancing

Refinancing your mortgage involves replacing your existing home loan with a new one, likely with a different interest rate, term, or balance. You can also choose to liquidate equity and pocket extra cash at closing by opting for a cash-out refinance. Your new refinance pays off the old mortgage, resulting in a single payment and updated terms. Refinancing offers an avenue for decreasing or extending monthly payments, going from an adjustable-rate to a fixed-rate home loan, as well as removing your name from the mortgage and replacing it with another borrower.

The refinancing process involves several steps, including:

1. Pick a refinance type. Your options include rate-and-term, cash-out, cash-in, no-closing-cost, or FHA Streamline.
2. Choose a lender. You can stick with your current lender or shop around for better rates and terms with a different lender.
3. Get your paperwork in order. Gather necessary documents like pay stubs, W-2s, tax returns, and other items your lender will request.
4. Float or lock your interest rate. You can lock in a rate now to protect against rates rising in the near future or float the rate to capitalize on possible rate drops.
5. Await an underwriting decision. The lender will scrutinize your finances, work history, credit scores, and ability to repay the debt.
6. Get your home appraised. A professional appraiser will evaluate your home’s value.
7. Close on the new loan. Prepare to review the closing disclosure, sign loan paperwork, pay closing expenses, and receive funds if doing a cash-out refinance.

Selling

Instead of attempting to transfer your loan, selling your home could be a better option under the right circumstances. Here, the next owner won’t benefit from assuming your loan. But if you try to sell your property directly to a relative or friend, you can avoid the costs and hassle of listing it on the market and bypass any real estate agent commissions if you complete the transaction using an attorney and escrow company.

Modifying

Or, consider modifying your existing mortgage loan, especially if you’re struggling to afford payments. The most common form of loan modification is when your lender allows missed payments to be added to the end of your loan, thereby extending the term. But to qualify for this, you’ll likely have to prove a financial hardship.

“A loan modification maintains the current mortgage but modifies terms such as the balance, rate, or payment schedule to make it easier to manage,” Shirshikov says.

Using a quitclaim deed

Instead of a mortgage transfer, a quitclaim deed can be used if you want to transfer your ownership interest to a family member or other person without altering the current mortgage loan.

“But the underlying mortgage must still be paid off or formally assumed by the new owner with the lender’s approval," says Weisselberger.

Put another way, the quitclaim deed doesn’t change the mortgage obligation, but it changes who legally owns the home.

The bottom line: Know the ins and outs of a mortgage transfer

A mortgage transfer provides a means to reassign loan repayment responsibility and/or ownership of a property when you are faced with significant life changes or financial hardship. Unlike a refinance or home sale, this allows a new borrower to assume repayment duties without the need for a new loan, preserving the original terms of your existing mortgage. But lender approval is needed, and not every type of mortgage qualifies for a transfer. Carefully understand what this process involves, and weigh viable alternatives that may present better options – such as refinancing, selling, modifying your loan, or using a quitclaim deed.

Seeking a new purchase or refinance loan instead? Rocket Mortgage^® makes the application process simple.

Refinancing may increase finance charges over the life of the loan.

The FHA Streamline program may have stricter requirements in some states. In order to qualify for the FHA Streamline program, an immediate .5% minimum reduction in interest and mortgage insurance premium is required. Some states may require an appraisal.