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Can A Mortgage Be Transferred To Someone Else

Can A Mortgage Be Transferred To Someone Else

Can A Mortgage Be Transferred To Someone Else

Some homeowners may get an offer to “buy” their home where the buyer proposes to give a small down payment to the homeowner and take over the existing mortgage.  As part of this deal the buyer agrees in writing to continue paying on the mortgage.  Especially with mortgage interest rates much higher than they were in the recent past getting a house with a low-rate mortgage can be a great deal.  Once the homeowner moves out the buyer will then attempt to sell, rent or live in that house.  The problem with situation becomes when the current homeowner does not have an assumable mortgage or has not done the proper paperwork for the buyer to assume the mortgage when the mortgage is assumable.  If the buyer stops paying on the mortgage the trouble will begin.

Which Mortgages Are Assumable?

An assumable mortgage means a buyer can officially take over an existing mortgage and take the place of the current homeowner whose name is on the mortgage.  Generally VA (Veteran’s Administration) and FHA (Federal Housing Authority) mortgages are the only assumable mortgages for residential real estate.  Both the VA and FHA have rules and requirements for the new buyer to meet prior to being able to assume the mortgage.  Failing to meet those requirements can prevent the assumption of the mortgage.  As a result the homeowner needs to be discussing the assumption process with the VA/FHA at the very start before any agreements are made to sell a home with the condition of the buyer assuming an existing mortgage.

Can a Buyer Take on a Non-Assumable Mortgage?

Depending on how the transaction is done a homeowner could run the risk of violating a mortgage clause called the “due on sale clause”.  Under the due on sale clause any transfer of the property from the existing borrower to another person or entity (LLC or corporation) triggers the due on sale clause and the lender can demand immediate payment of the entire mortgage amount.  angry womanSometimes in order to avoid this the buyer suggests the homeowner keep their name on the deed and have a separate agreement to cover the buyer taking over the home and the mortgage.

The biggest risk with this type of transaction is if the buyer fails to make payments for taxes, insurance or the mortgage payment the homeowner is still on the hook for those amounts owed regardless of what some contract between the buyer and homeowner says.  The tax authority will come after the person whose name is on the deed and the lender will come after the person who originally took the mortgage out.  Usually the mortgage requires homeowners insurance to be maintained while there is a loan on the property.  If the buyer lets that insurance lapse there could be problems as a result with the lender.

Even if the homeowner can get back possession of the home after the buyer stops paying, who knows what the condition of the home will be in and whether it can get enough money on an open market sale to pay off everything that is back owed to the government and lender.  Giving away a house to a buyer because they offer an up-front amount of cash and agree to make the mortgage payments for the homeowner is not the easy way out with regards to a home.  If the homeowner wants to sell the home, they can approach any local real estate agent and have them list it for sale.  Even when selling a home as-is, due to the homeowner not wanting or being unable to make repairs or updates, the home will be a better alternative to selling to some random buyer who also wants to assume the mortgage.

Eric Jeanette, CEO of Nonprime Lenders has weighed in on assumable mortgages. "Paul, assumable mortgages can help the seller to get maximum value when prevailing interest rates are higher than the current mortgage on the property. However, the challenge is getting the current lender to agree. The buyer of the home also must qualify for the mortgage that will be assumed.

What Kind of Buyers Offer to Buy and Assume the Mortgage?

While there are some legitimate buyers who want to buy a home and live in it and think that by assuming the mortgage of another with a low rate they will have an advantage, other times it is the investor buyer looking for a little to no money down real estate investment purchase.  Not only does the low money down option appeal to these investor buyers, being able to “buy” the home with a low interest mortgage rate is even better since they are hoping to make more in rent than they must pay towards mortgage, taxes and insurance.  There are investor courses that teach this exact strategy.

These investor buyers are looking to become landlords using someone else’s home and are really just renting the home from the homeowner and hoping to make a profit.  Sometimes they are taught that real estate investing is passive income with little input needed from the owner once the right systems are put into place.  Passive income real estate investing is a myth unless one is investing in a real estate investment trust which is sold as a stock on the stock market.  Once the buyer realizes it is more work for less pay they may decide to walk away after which the homeowner will have to deal with the results.

How Should a Homeowner Sell Their Home

As discussed briefly above the homeowner should be speaking with local real estate agents to first determine what their home is worth and then discuss a strategy for listing the home for sale on the market.  Even if the homeowner does not want to or is not piggy bankable to improve the look of the home, by listing on the local MLS and listing it at the right price there will be buyers ready to purchase the home.  Those buyers who come looking to buy via the MLS will also be ones who are ready to take out their own mortgage loan so the homeowner’s mortgage can be paid off upon closing.  Anytime a buyer approaches the homeowner directly they should be talking at minimum with a local real estate attorney or a local real estate agent.

With an on-market sale the home will be properly transferred to the new buyer so the tax collector will only be looking to the new owner to pay any bills after closing date.  The effort to sell a home on the open market is not that much if the homeowner does not want to put that much effort into it. On the other hand, selling the home to an investor who does not really “buy” the home but instead “rents” it can lead to a lot of headache and stress if that investor decides they no longer like that hobby.

Final Thoughts

If something sounds to good to be true it usually is.  There is no easy way to transfer a home without jumping through the proper hoops.  By attempting to transfer a mortgage without understanding the legality about it can result in long term pain.

Additional Resources

  • Important FHA Guidelines to Understand - FHA Mortgages have a different set of requirements than a conventional mortgage.  FHA buyers need to understand the process in order to help get success in the process.
  • Tips For Selling For Sale By Owner (FSBO) - Selling a home for sale by owner can be done and is done successfully by those willing to put in the effort.  This article explores the steps a homeowner can follow to sell their home on  their own.

About the author: The above article “Can A Mortgage Be Transferred To Someone Else” was provided by Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!

I service the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde ParkIndian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.

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