If you are selling your house, it could make sense to transfer that current mortgage over to the new homeowner. This spares a new owner on closing costs and having to start all over in search of the loan amount needed for a particular loan term to accomplish the purchase through a licensed realtor. This could result in higher interest rates and higher monthly payments depending on the lender and the credit score of the homebuyer. Let’s take a deeper look into what goes into transferring mortgage ownership.
Transfer of Mortgage
A transfer of mortgage is a transaction where either the borrower or lender assigns an existing mortgage from its current holder to another person or entity. Homeowners who aren’t able to keep up with their mortgage payments may seek a transfer to avoid defaulting on a home loan or sending the home into foreclosure. While this may be a greater solution to a conventional loan, not all mortgages can be transferred. Mortgage lenders often include a due on sale clause that can prohibit a seller from transferring the loan to a buyer.
That clause can be avoided by transferring the mortgage to a family member or legally separated spouse. It can also happen through inheritance. If you need to look into refinancing, a mortgage loan calculator can help a new home buyer determine the maximum loan amount they may seek based on their credit score and history. This will also determine the best mortgage rates available, as well as how much interest may have to be paid in the long term.
Assumable Mortgages
An assumable mortgage loan is a good news to buyers and sellers. This means there’s nothing written in a mortgage agreement that prevents a transfer. In these cases, a new borrower needs to qualify for the loan. The lender will look at the borrower’s credit history and debt-to-income ratios to evaluate the ability to pay back the loan based on their current financial situation. Lenders approved the original loan application based on the seller’s credit and income. You’re not off the hook for a 15-year or 30-year mortgage, or whichever term, if a replacement borrower isn’t in place.
Lenders don’t usually benefit from letting homeowners transfer a mortgage, as they end up losing out on interest payments than they would get from a new loan. Buyers would come out ahead by getting a more “mature” loan, with the early interest payments out of the way. Sellers would get to sell their house more easily, usually at a higher price of those same benefits. Be sure to explore quotes online to find out what the best banks and best lenders have to offer on your mortgage application.
Unofficial Transfers
Unofficial transfers are a testy circumstance that can be utilized to cover the cost of the loan. Through this, a seller could sell the house to a buyer, but allow the buyer to reimburse mortgage payments with the loan remaining in place. However, there are legal ramifications. If the home buyer stops paying, it’s still the seller’s problem, and the late payments wind up on your credit reports. If the home is sold in foreclosure for less than its value, it could result in a deficiency, which is a nightmare for first-time homebuyers.
At the end of the day, the real estate marketplace is testy. You want to make your home as desirable as possible for a potential buyer. Some realtors have found the benefits of staging a home to help potential purchasers visualize how their family would settle into the property. From a highly decorated living room to bedrooms designed to fit children, the visualization tools tend to draw offers, leading to a potentially higher purchase price. Regardless of the mortgage situation, it’s important that all parties are satisfied.