When selling your home, or if an owner moves out, you typically would transfer the mortgage to a new owner, instead of applying for a new loan. Makes sense, right? This way, they don’t pay closing costs or have to start over with higher interest charges. Even though it’s possible to transfer a mortgage, you might want to read on to learn why it’s not always easy.
An assumable mortgage loan means you can transfer it to a new owner. This type of loan allows you to take on the seller’s existing mortgage, but the lender will still require a credit check, loan application, and other information from the buyer before the loan can be assumed. There won’t be any new terms or rates based on these items, just ensuring the buyer can make the assumed payment and stay current on the loan.
But, just how difficult is the transfer? We’ll discuss that down below.
Transferring Assumable Loans
As stated above, taking on an assumable loan requires the same process as a regular loan would, including looking at the borrower’s credit scores and debt-to-income ratios—showing how much of your monthly income goes towards debt payments. This lets both the buyer and lender know the ability to repay the loan. Next to a credit score, the debt-to-income ratio is an essential factor for getting loan approval.
To begin the process, the seller needs to request a change with their lender, with the buyer going through all the checks, application, and information required. There is also a fee when seeking an assumable loan. Once that is completed, and the buyer approved, the seller then transfers the loan to the new owner.
Finding Assumable Mortgages
Here’s where it gets tricky—when you can’t find one. It’s not typically common to find assumable mortgages, unfortunately. An FHA or VA loan seems to be the best bet. All other conventional mortgages rarely offer assumable mortgages. The reason being is that lenders don’t typically benefit from letting a seller transfer a mortgage, so they won’t usually approve of one.
Now, in some cases, there is an exception to the rule, and that’s with family member transfers. If a child or parent takes over the loan, lenders will usually allow it. Of course, you need to ask your lender if that’s possible and review your agreement with an attorney, just to ensure what your lender says is accurate. Keep in mind, switching out names on a loan affects only the loan. You still may need to change who owns the property by transferring title, using a quitclaim deed, or taking other steps required in your situation.
If you’re denied approval for a transfer, you may think about setting up an “informal” arrangement. This means you could sell your house, leave the existing loan in place, and just have the buyer reimburse you for mortgage payment; however, that’s a bad idea, and you could be in legal trouble if you try it.
Let NH Home Buyers Help
Instead of going through the process of transferring a loan, give us a call and let us buy your home outright— No agent, no fees or commission, and no wasting time. We buy houses as-is and close within a week, usually. You get cash quickly and can move on to your future home. Contact us today to learn how!