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Buying or selling a home can be complicated, especially when it comes to financing. If you have an FHA loan you may be wondering if it’s possible to transfer it to another person when you sell your home. The good news is that FHA loans are assumable meaning the buyer can take over your existing mortgage. This can save both parties time and money compared to getting a new loan.
In this comprehensive guide, we’ll explain everything you need to know about transferring an FHA loan, including:
- What is an assumable mortgage?
- Why are FHA loans assumable?
- How to transfer an FHA loan
- Tips for a smooth transfer
- What happens after a successful transfer
What is an Assumable Mortgage?
An assumable mortgage is one that allows the borrower to transfer the loan to another person when they sell the home. This means the buyer can take over the seller’s existing loan and its current interest rate balance and terms.
With an assumable loan, there’s no need to take out a new mortgage. The buyer assumes all responsibilities of repaying the loan. This can save both parties time, effort, and money compared to originating a new mortgage.
Why Are FHA Loans Assumable?
FHA loans are assumable because they don’t contain a “due-on-sale” clause. This clause gives the lender the right to demand full repayment of the loan if the home is sold or transferred before being paid off.
Since FHA loans lack this clause, they can be freely transferred between the buyer and seller. This makes them more attractive to buyers since they can assume the loan at the current low interest rate.
Assuming an FHA loan can save the buyer thousands of dollars in interest over the life of the loan compared to current rates. This helps offset the costs of purchasing the home.
How to Transfer an FHA Loan
If you want to transfer your FHA loan, here are the steps to follow:
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Review loan documents – Double check that the loan is assumable and doesn’t contain a due-on-sale clause.
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Find an interested buyer – Market the assumable loan as a selling point for the home. This can attract buyers who want to save money.
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Request a transfer – Contact the lender to begin the transfer process. You’ll need to submit a “release of liability” form.
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Buyer applies – The new owner must fill out a loan application and meet FHA credit requirements.
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Lender reviews – It takes around 45 days for the lender to process the application and approve the transfer.
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Complete the transfer – Once approved, the buyer takes over loan payments and you’re released from liability.
Tips for a Smooth FHA Loan Transfer
Follow these tips to help the FHA loan transfer go smoothly:
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Stay current on payments – Any late payments could derail the transfer, so pay on time.
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Check creditworthiness – Make sure the buyer has a 620+ credit score and stable income to qualify.
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Inspect the home – Allow the buyer to thoroughly inspect the home before transferring the loan.
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Consult an attorney – Consider having a real estate lawyer review the process. This provides extra assurance.
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Transfer homeowners insurance – Work with the buyer to transfer the insurance policy to their name.
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Communicate with the lender – Stay in touch with the lender throughout the process to avoid surprises.
What Happens After a Successful FHA Loan Transfer?
Once the new owner is approved and the transfer goes through, here’s what happens:
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The buyer assumes all mortgage responsibilities – They take over the monthly payments, interest rate, and loan balance.
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The original borrower has no more liability – You’re released from the loan and any obligation to repay it.
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The loan keeps the same terms – Nothing about the loan itself changes, including the length and interest rate.
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The lender has a new borrower – Loan servicing switches from you to the new owner.
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Homeowners insurance changes – Insurance must be in the buyer’s name to remain valid.
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Taxes and escrow adjust – The lender will adjust escrow payments if needed based on the home’s new assessed value.
Wrap Up
Transferring an assumable FHA loan can benefit both buyers and sellers. As the original borrower, take steps to ensure a smooth transition of responsibilities. This includes checking loan eligibility, finding a qualified buyer, communicating with the lender, and properly finalizing the home sale.
With the right preparation, you can take advantage of the assumable nature of FHA loans and use it as a win-win for everyone involved in the real estate transaction. This allows the buyer to save substantially on mortgage costs over time.
How a transfer of mortgage works
When you transfer a mortgage, another person assumes the financial responsibility of repaying the outstanding loan balance, under the same terms and conditions. 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.
Transferring a mortgage has benefits for both the original borrower and the new borrower. For example, transferring a mortgage can help the original borrower avoid foreclosure if they’re unable to continue paying their loan. For the new borrower, assuming an existing mortgage can potentially help them get a better interest rate than what’s offered in the current market and avoid the closing costs required with a new mortgage.
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- A mortgage transfer is when another person or an entity takes over your existing mortgage.
- Most mortgages are not transferable, but lenders may approve a transfer in a few situations.
In most circumstances, a mortgage can’t be transferred from one borrower to another. That’s because most lenders and loan types don’t allow another borrower to take over payment of an existing mortgage.
In some cases, though, a mortgage transfer is necessary and allowed, such as in the event of a death, divorce or separation, or when a living trust is involved.
Loan Assumption – What You Need To Know Before Assuming a Loan
FAQ
Can I transfer my home loan to another person?
Can you take over someone’s FHA loan?
How hard is it to assume an FHA loan?
Can an FHA case number be transferred to another person?
Can I transfer my mortgage to another person?
The short answer is yes, you can transfer your mortgage to another person, but only under certain circumstances. To find out if your mortgage is transferable, assumable or assignable, contact your lender and ask.
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?
Can I transfer my mortgage to a buyer?
If you have an assumable mortgage, you may be able to transfer your mortgage to a buyer. But your lender will need to agree to this and approve the person taking on the loan. Can I add someone to my mortgage without refinancing?
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.