In some situations—such as a divorce or the death of a loved one—you might want to transfer a mortgage to someone else. However, it can be difficult to qualify for a transfer outside of special circumstances.
If you’re wondering whether you can transfer your mortgage and if you qualify, here’s what to know.
When buying a home, assuming the seller’s existing mortgage can save you money compared to getting a new loan. This is especially true when interest rates are high. But can you transfer an FHA-insured mortgage to the buyer when you sell your home?
The short answer is yes – FHA loans can be transferred between buyers and sellers in certain situations. This process is known as a loan assumption. Let’s take a closer look at how it works.
What is a Loan Assumption?
Assuming a mortgage means the home buyer takes over the seller’s existing loan and continues making payments on it. The loan transfers from one property owner to the next.
Rather than getting a new mortgage at current interest rates, the buyer inherits the seller’s potentially lower rate. This can make the home more affordable.
Are FHA Loans Assumable?
Most conventional mortgages contain a “due-on-sale” clause stating the loan must be paid off when the home is sold. But FHA insured mortgages are assumable because they lack this clause.
Specifically. FHA loans closed
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Before December 1, 1986 can be assumed without lender approval using a simple process. The buyer and seller handle the transfer details themselves.
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After December 1, 1986 require lender consent and formal approval of the new borrower, called the creditworthiness process. The lender must verify the buyer’s income, credit, and ability to repay the loan.
So in short, yes FHA buyers can assume the prior owner’s mortgage in many cases, making these loans assumable.
Who Benefits from FHA Loan Assumptions?
FHA loan assumptions can benefit both home sellers and buyers:
For Sellers
- Easier to find buyers when they can assume your lower rate loan
- Don’t have to pay off loan balance when you sell
- Buyer can pay you for your home equity directly
For Buyers
- Lower mortgage rate than current market rates
- No downpayment needed to assume loan
- Save significantly on closing costs compared to a new mortgage
It’s a win-win allowing buyers to save money and sellers to access their equity.
What Are the Requirements to Assume an FHA Loan?
If the FHA loan originated after 1986, the lender will require formal approval of the new borrower before allowing a loan assumption. Here are some key requirements:
- Credit score – Minimum 620 credit score in most cases, higher for excellent rates
- Income – Stable source of income sufficient to afford monthly payments
- Downpayment – No downpayment needed but may need separate funds to pay seller’s equity
- Debt-to-income ratio – Total debt ratios generally below 43%
- Home value – Appraisal to confirm home value supports loan amount
Meeting these criteria demonstrates you can manage the financial obligations of the mortgage you are assuming.
How Does the FHA Loan Assumption Process Work?
The loan assumption process includes these primary steps:
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Find a home for sale with an assumable FHA loan. The seller must disclose loan details like the rate, term, balance, and assumability.
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Enter into a sales contract with the assumable loan terms stated. This shows lender you plan to assume the loan.
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Submit your financial details – income, assets, debts, credit report – to the lender for approval.
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Get appraisal to confirm home value supports the outstanding loan amount.
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If approved, close on the home and start making payments on the assumed loan.
It’s very similar to a normal mortgage except you take over the prior borrower’s loan instead of needing loan approval yourself. The lender just has to confirm you are a qualified borrower.
What Else Should I Know About FHA Loan Assumptions?
Here are some other important points if you’re considering assuming an FHA-insured mortgage:
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The original borrowers remain responsible for the loan until the lender releases them in writing. Make sure the seller has this loan release.
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You’ll likely need separate funds to pay off the seller’s home equity that is over and above the assumed loan balance.
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There is a 0.05% assumption fee you’ll pay to the lender, much lower than standard closing costs.
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Loan assumptions save significantly on closing fees but you’ll still owe escrow and title transfer costs.
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If rates are lower now, assuming the loan likely won’t make sense. Do the math to see if it results in savings.
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Consider working with a real estate attorney to ensure the process goes smoothly and you are protected.
While not overly complex, loan assumptions have risks and regulations you need to take time to understand. But for qualified buyers, taking over an assumable FHA mortgage can lead to big savings and easier homeownership.
Alternatives if the Loan is Not Assumable
What if the FHA mortgage cannot legally be transferred to the new buyer? Here are some options to consider instead:
New FHA Loan – As long as you meet requirements, you can apply and get approved for a new FHA insured mortgage based on current rates and your finances.
Conventional Loan – If your credit and income are strong, consider a conventional loan from a private lender. You’ll likely need a downpayment.
Cash Purchase – If you have sufficient funds, you can make a cash offer and skip financing altogether. The seller pays off their existing mortgage.
Seller Financing – The seller themselves provides financing by creating a separate loan contract with you as the buyer.
Don’t let a non-assumable mortgage deter you. Work with your lender to explore various alternatives to get the home you want.
The Bottom Line
Assuming an FHA loan from the home seller allows qualified buyers to take over the existing mortgage and obtain significant savings. This option is available because FHA loans are assumable without lender consent in some cases or with their approval in others. It can benefit both buyers and sellers.
While not every FHA loan permits assumptions, and strict criteria must be met, loan transfers provide opportunities for affordable home buying even when current rates are high. Consider whether assuming a mortgage could make your dream home a reality.
What Is a Mortgage Transfer?
A mortgage transfer is when you transfer your existing home loan—including its current interest rate and terms—to another person. This allows the other person to assume responsibility for the home and the lender’s lien on it without needing to get a new mortgage.
Is It Possible to Transfer a Mortgage?
While you won’t be able to transfer your mortgage in most cases, you might be able to if you have one of the following:
A mortgage is considered “assumable” if the loan agreement allows the original borrower to transfer their loan to someone else. In this case, the buyer of the home would simply take over the seller’s existing loan, and the current rate, terms and balance would stay the same.
Even with an assumable loan, the buyer will still need to meet the lender’s qualifications to be eligible. This usually means filling out an application, undergoing a credit check and providing documentation, such as income and employment information. On the plus side, a home appraisal usually isn’t required—though it’s still a good idea for the buyer to have the property inspected for any repair issues.
Sometimes a mortgage can be transferred even if it isn’t assumable—and a lender might also opt to be more generous and permit transfers on a case-by-case basis. For example, a transfer might be allowed if:
- You want to transfer the loan to a spouse, child or another relative.
- You’re going through a divorce or separation.
- The original borrower dies and the loan must be transferred to a surviving joint tenant or relative.
- The loan is being moved into an inter vivos trust (also known as a primary trust) where the borrower is a beneficiary.
Like with an assumable loan, taking over another kind of loan means the new borrower still needs to meet requirements set by the lender. Eligibility criteria can vary by lender but will likely include a credit and income check to make sure the new borrower is creditworthy and can afford to repay the loan.
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Can a FHA loan be transferred?
As long as the person taking over the loan meets the lender’s credit and income requirements, an FHA loan can be transferred. VA loans: Also generally assumable, VA loans can be transferred to another eligible veteran or even a non-veteran — if they qualify. However, the process involves specific VA requirements and approvals.
Can I transfer my mortgage?
While you won’t be able to transfer your mortgage in most cases, you might be able to if you have one of the following: A mortgage is considered “assumable” if the loan agreement allows the original borrower to transfer their loan to someone else.
Can you transfer a home loan?
Most conventional loans come with a “due on sale” clause, which requires the loan to be paid in full if the property is transferred. (More on this in an upcoming section.) Adjustable-rate mortgages (ARMs): The ability to transfer these loans varies.
What happens if a mortgage is transferred to a new borrower?
The monthly payment, loan length and interest rate will remain the same once the mortgage is transferred to the new borrower. After the successful transfer of a mortgage, the original borrower is usually relieved of any financial obligations for repaying the loan.