How to Change a Loan's Name
It might make sense to try to transfer the mortgage to the new owner when you sell a house or move out. The new owner could take over the current payments rather than apply for a new loan, pay closing costs, and start over with higher interest charges.
There are loans that you can transfer. Assumable loans are what they're called. However, there aren't many options available. Learn more about loan transfers and what you can do if you need to transfer a loan that isn't assumable.
Important Points to Remember
- As long as the loan is assumable, you can transfer it to someone else.
- The new borrowers will be treated as if they were applying for a personal loan.
- Even if your lender says no, you still have options if your mortgage is not assumable.
Assumable Mortgages
You're in luck if a loan is "assumable," which means you can transfer the mortgage to someone else. There is nothing in your loan agreement that prevents you from transferring funds. Even assumable mortgages, on the other hand, can be difficult to transfer.
In most cases, the new borrower must meet the loan's requirements. To assess the borrower's ability to repay the loan, the lender will look at their credit scores and debt-to-income ratios. The procedure is the same as if the borrower were applying for a new loan. The original loan application was approved based on your credit and income. They won't let you off the hook unless they can find another borrower who is just as likely to pay back the loan. To complete an assumable loan transfer, contact your lender and request the change. During the application process, you'll have to fill out forms, verify your income and assets, and pay a fee.
Where Can You Find One?
Assumable mortgages, unfortunately, are not widely available. You might be in luck if you have an FHA or VA loan because they are assumable. Other types of conventional loans are rarely re-assumable. Instead, lenders use a due-on-sale clause, which states that you must repay the loan when you transfer the property's title.
Lenders are usually hesitant to approve mortgage transfers because they lose interest payments that would otherwise come from a new loan. Getting a more "mature" loan, with Getting the early interest payments out of the way would benefit buyers. Sellers would be able to sell their home more quickly and for a higher price as a result of the same advantages.
Exceptions To The Rule
A loan with a due-on-sale clause can be transferred in some circumstances. Family transfers are frequently permitted, and your lender can always choose to be more generous. The only way to be sure is to ask your lender and have your contract reviewed by an attorney. Even if lenders say it's not possible, if your bank gives you the correct information, an attorney can help you figure it out. Changing the names on a loan does not affect the loan. You'll still need to use a quitclaim deed or take any other steps necessary in your situation to transfer the title.
Under certain circumstances, the Federal Deposit Insurance Corporation (FDIC) prohibits lenders from exercising their option to accelerate payment. Consult your lawyer to see if you qualify for a transfer without an accelerated payment.
The following are some of the most common scenarios:
- When one of the joint tenants dies, the surviving joint tenant receives the property.
- a relative after a borrower's death.
- To a borrower's spouse or children,
- Divorce and separation agreements have resulted in
- The borrower is a beneficiary of an inter vivos trust (living trust).
Unofficial Transfers
You might be tempted to make an "informal" arrangement if you can't get your request approved. You could, for example, sell your home, keep your existing loan, and have the buyer reimburse you for your mortgage payments.
There are, however, some drawbacks to this. Your mortgage agreement most likely forbids this, and if your lender discovers it, you could face legal action. Furthermore, even if you no longer live in the house, you are still liable for the loan.
What could go wrong? Among the possibilities are:
- The loan is in your name, so it's still your problem if the buyer defaults. Late payments will show up on your credit reports, and creditors will pursue you.
- You may be liable for any shortfall if the house is sold in foreclosure for less than it is worth.
Other options for providing seller financing to a potential buyer include allowing a rent-to-own arrangement in which a portion of the rent goes toward a down payment if the renter decides to buy.
Your Options
If you can't transfer your mortgage, you still have options, depending on your situation.
Even if your lender says no, death, divorce, and family transfers may give you the right to make transfers.
If you're facing foreclosure, even if you're underwater or unemployed, some government programs can help you deal with your mortgage. To find out what applies to your situation, contact the US Department of Housing and Urban Development (HUD).
If you're getting divorced, talk to your lawyer about how to handle all of your debts and how to protect yourself if your ex-spouse doesn't pay. If you aren't on the title but were married to the homeowner, a local attorney can advise you on what to do next.
You can put your house in a trust, but double-check with an estate planning attorney to make sure you don't trigger an acceleration clause.
Refinancing
If you can't assume a loan and can't find an exception to a due-on-sale clause, refinancing may be your best option. To qualify for the loan, the new borrower will need to show sufficient income and credit history, similar to an assumption.
The new homeowner must apply for a new loan on their own and use it to pay off the existing mortgage debt. You may need to coordinate with your lenders to have liens removed so you can use the house as collateral (unless the new borrower and new lender agree), but it's a good, clean way to do it.
Most Commonly Asked Questions (FAQs)
Is it possible to add a co-borrower to an existing mortgage without refinancing?
No, refinancing is required to add or remove a borrower from a mortgage. You'll be able to add the new co-borrower to the mortgage and deed during the process.
Is a down payment required for assumable mortgages?
Assumable mortgages necessitate a down payment that is proportional to the amount owed on the property and its overall value. If the house is worth $200,000 but the mortgage balance is $100,000, the buyer will need to put down that amount as a down payment.
