As long as you have an assumable mortgage, you should be able to transfer ownership of your home along with the mortgage. There are several ways that this can be done, including as a sale, as a gift, or as a part of a transfer after one’s death. Each method has its own tax consequences If you’re wondering how to transfer ownership of a house with a mortgage, you’re in the right place. Here’s a step-by-step guide.
Life is unpredictable, especially when you have a mortgage. For one reason or another, you may want to transfer ownership of a house with a mortgage to a relative or business partner. And you may want to do this in a way that doesn’t require the recipient to pay off the existing mortgage and get a new one. But, is this actually possible, and if so, how do you do it?
Figuring out what you need to do is a must if you find yourself in this situation. Here’s what you should be aware of.
How to transfer ownership of a house with a mortgage
Most of the time, this is not going to be an easy thing to do. It’s a complex process, ideally done with the help of a real estate attorney. Here’s how you will need to do it, in terms of simple, generalized steps:
- You need to name the person to whom you want to transfer property ownership. This can be a friend, a family member, or anyone else.
- You are going to have to determine the terms of the transfer, ideally with the help of an attorney. Technically, you don’t need an attorney for this, but working with one can help you avoid costly mistakes related to taxes, fees, and other matters.
- Fill out a change of ownership form. Laws and forms vary by state, so you may wish to get a lawyer for this. You also will need to change the name on the title.
- Choose the right deed and prepare the paperwork, working with a lawyer if possible. There are different ways to do this, depending on your state and locality. Quitclaim deeds are most commonly used. These transfer all of one person’s rights in a piece of real estate to another person without guaranteeing anything. A lawyer specializing in real property transfers will make choosing the best approach for your situation a lot easier.
- Get the deed notarized and filed. Just like that, the property is transferred!
Are all homes with mortgages transferable?
Unfortunately, not all mortgages are transferable in the fullest sense of the word. In many cases, you will need to have a mortgage lender approve transfers. If you have an assumable mortgage, however, it’s safe to say that you can transfer your mortgage over to a new owner.
Most mortgages have a “due on sale” clause. This clause means that whoever gets the home will have to pay the entire balance of the mortgage as soon as it’s transferred. This means the old mortgage has to be paid in full immediately, and the new buyer has to get a new mortgage on the house. If terms for new mortgages are as good or better than the old mortgage terms, this isn’t be a big deal for most recipients with good credit. If the new mortgage means higher interest rates or less appealing terms, however, recipients will be much happier if they can take over the existing mortgage.
The due-on-sale clause doesn’t always kick in if you want to transfer property ownership to a family member. To get a handle on this, read your mortgage agreement and discuss it without your lender. Asking a lawyer can also help.
Get an assumable mortgage, if you can
Assumable mortgages are mortgages that can be transferred to someone else without approval of the lender. FHA and VA loans are most likely to be assumable mortgages. If you do not have an assumable mortgage, you will have to contact your mortgage lender to get approval.
In some cases, your mortgage company may require the new owner to qualify for a new loan at the same terms. So, even a donee who doesn’t want to get a new mortgage may have to show financial fitness.
Are there any exceptions to the “due on sale” clause?
Yes, the FDIC has several rules that bar lenders from asking for “accelerated payment” or exercising the sale clause. These rules preempt, or take priority over, state laws concerning due-on-sales clauses. These FDIC rules include:
- Transfer to the surviving joint tenant when the primary owner dies
- Transfer to the child of a borrower
- Transfer to the surviving spouse or relative of the borrower
- Transfer to an ex spouse as a part of a divorce
- Transfer as part of an inter vivos trust that has a borrower or donee as a beneficiary
If you receive property under conditions where federal preemption of state due-on-sales laws applies, you have a strong bargaining position when seeking to assume a “non-assumable” mortgage loan.
Should you try an unofficial transfer of mortgage?
If you cannot get approved by your lender, you might be tempted to work around lenders through an unofficial transfer of property ownership. This is rarely a good idea, primarily because you will end up being responsible for legal ramifications if lenders find out.
Depending on the circumstances, you may find yourself getting sued or even face criminal charges. Moreover, if the person to whom you transfer the property doesn’t pay taxes or the mortgage, you may end up owing instead.
What should you know about transferring ownership to a family member?
If your donee is going to be a family member, then lenders are going to be more amenable to the transfer. The thing is, you still need to choose the right deed and circumstances for the switch. Let’s look at the most important loan documents you might sign.
A quitclaim deed transfers property without a traditional sale. Most people will use a quitclaim deed to transfer ownership of real estate between family members. In the case of a divorce, you might see one ex spouse transfer real property to the other. These deeds do not make any guarantees about title, just transfer all property rights held by one person to another.
Transfer by sale
When you sell your house, you complete a transfer by sale. If your mortgage is not assumable, this sale will almost always mean having to deal with a due-on-sale-clause. If your buyer wants to assume your mortgage, you will need to negotiate with you lender to make this happen. And there are no guarantees your lender will agree.
As well, unlike gift recipients or donees, few home buyers will settle for a quitclaim deed. With almost all transfers by sale, you will need to use a warranty deed. A common type of warranty deed in California, for instance, is a grant deed.
Also called a “beneficiary deed” in some states, this is, as you can guess, a way to arrange an inheritance. Here, you keep control and use of the home while you’re alive. The transfer-on-death deed then kicks in when you die, ceding ownership and control to the loved one of your choice.
Because it avoids probate, a transfer-on-death can greatly streamline real estate inheritance. However, your beneficiary will be required to take over your mortgage when you die. Moreover, a transfer-on-death deed is not always an option. It depends on where you live.
Transfer by gift
This is a special form that you have to complete if you want to gift a home to a family member or friend. For the property transfer to qualify as a gift, you can neither require nor expect compensation. Here, you may have to pay a gift tax, since the cutoff for annual gifting is $15,000.
A gift deed may be revocable and, in most cases, acts as a delayed title exchange. There are tax consequences here, so it’s best to talk to a financial adviser if you want to do this. Donors generally have to pay the federal and state gift tax.
How to refinance a mortgage
Refinancing can be a good option when your loan it not assumable, but this will depend on your mortgage lender. With this, your donee will have to have good financial standing and will have to qualify for mortgage refinancing.
In certain circumstances, your mortgage lender may also be willing to add another borrower onto your mortgage. From there, the borrower can make payments and the home ownership (title) can be transferred via a deed. You may want to ask a real estate attorney and your lender what can be done in these situations.
It’s important to remember that your home’s transfer will likely come with a bunch of tax consequences. This can include a capital gains tax as well as a gift tax that either the donor or the donee may have to pay. Discussing this matter with a financial planner can help you avoid issues with the Internal Revenue Service.
- Whether or not you can transfer ownership of a home with a mortgage depends on whether the mortgage is assumable or not.
- Home transfers can happen via sale, gifting, inheritance, or even a transfer-on-death deed.
- Most assumable mortgages will have a due-on-sale clause that may require your donees to pay the remainder of the mortgage.
- Tax penalties are a major concern, so make sure that you discuss the outcomes with a tax professional before you transfer your deed.
- In many cases, you’ll want a real estate attorney to help you properly fill out all the documents for a successful transfer.
Can you transfer ownership of a house to a family member?
Absolutely. Home sales aside, transferring a home’s title from one family member to another is one of the most common ways homes change hands. It’s most commonly done as a part of property exchange upon death or divorce. The most common deeds used for these transfers are quitclaim deeds.
Can you take someone’s name off a mortgage without refinancing?
It is possible to take someone’s name off a mortgage without refinancing, but it isn’t always easy. In most cases, it’s best to talk to a loan officer about mortgage modification or loan assumption. Either method can work.
Can I take over a mortgage from my parents?
Yes, you can take over a mortgage from your parents. If your parents wish to transfer a property over to you and have you take over payments on the existing mortgage, this should be doable with a qualifying mortgage. If the mortgage is non-assumable, you may need to do some negotiating with the mortgage lender, but FDIC rules on due-on-sale clauses could make your negotiating position a strong one. Title transfer between parents and children frequently uses a quitclaim deed.
Note that this is not the same thing as handling financial affairs, including mortgage payments, as a part of caretaking for the elderly. If your parents can no longer manage their own finances, you will need to have made prior arrangements to deal this with eventuality. Setting up a durable power of attorney for finance can ensure that someone has authority to handle your parents finances while they are alive if they become incapacitated. A living trust with you as successor trustee similarly ensures you can handle financial matters involving property in the trust should your parents become incapacitated or pass away. Consulting a legal professional can help you navigate the complexities of these arrangements in the way best suited to your and your parents’ situation.
Should your parents become unable to handle their own finances without any of the above legal arrangements having been made, you may need to go to court to seek a conservatorship.
Can I transfer a mortgage to my daughter?
It is always possible to transfer a mortgage to a child as long as it’s an assumable mortgage. That said, some mortgages will be less easily transferred than others, and some will only be eligible under certain conditions. If you want to find out whether you can transfer your specific mortgage, your lender will give you the final word. However, since letting mortgages be assumed isn’t always the best deal for mortgage lenders, there have been times in the past when lenders have not been as open and transparent about borrower options as they could be. This might make getting a second opinion on your lender’s final word worthwhile. If you’d like such a second opinion, speak to a real estate attorney.
Can you keep a mortgage in a dead person’s name?
Unfortunately, you cannot keep a mortgage in a dead person’s name. The heirs to the estate are going to have to choose between paying the existing mortgage, selling the home, or refinancing the home under one or more of their own names.
How do I take over my deceased parent’s mortgage?
This depends on the actual circumstances and laws in your state, although some state laws are preempted by FDIC regulations, as noted above. In many cases, you can do a mortgage assumption, which means that you are going to be in charge of the mortgage payments that the deceased property owners were supposed to make.
You may need to pay off the old mortgage with other assets in the estate before you can keep the home. In other cases, you may have to pick up a new mortgage to pay off the remaining balance.
The bottom line
Mortgages that can be transferred from one party to another are called assumable mortgages. If you don’t have an assumable mortgage, you may need to speak to your lender or financial institution to determine what options you have.
Regardless of your situation, transferring home ownership from one person to another is seldom easy. If you want to find out the best way to make it happen, doing some research and consulting with an expert are smart moves. And reading up on mortgage studies could provide some useful background knowledge. The more you know the better off you’ll be.
View Article Sources
- 2021 Mortgage Industry Study — SuperMoney
- Acceleration Clause — Legal Information Institute, Cornell Law School (LII)
- Best Mortgage Refinance Lenders — SuperMoney
- Can You Transfer a Mortgage to Another Borrower? — The Balance
- Deed — LII
- Deeds — Los Angeles County Registrar-Recorder, County Clerk One example of the sort of local guidelines you should be able to find where you live
- Due-on-sale Clause — LII
- FDIC Law, Regulations, Related Acts 8000, Part 591: Preemption of State Due-on-Sale Laws — Federal Deposit Insurance Corporation (FDIC)
- Family Trusts — SuperMoney
- FHA FAQ: Answers to the 19 Most Frequently Asked FHA Loans Questions — SuperMoney
- Gift Deed — US Legal
- Make Sure These 4 Documents Are Signed And Current — Dementia.org
- Refinancing a Mortgage? Here’s What You Need To Know — SuperMoney
- States That Allow Transfer-On-Death Deeds for Real Estate — Nolo
- Transfer-on-Death Deeds: An Overview — Nolo
- Transferring Property Ownership to Family, Charity, and More — American Financing
- Veterans, Thinking of Buying a House? Here’s Why VA Loans Are Better than Conventional Mortgages — SuperMoney
- Warranty Deed vs. Quitclaim Deed: How are they different? — Rhodes Law
- YOUR MORTGAGE : When a Non-Assumable Loan Is Assumable : Legal Rights: There are seven situations under a 1982 law when property can be transferred without need to refinance. — Los Angeles Times A classic article on the subject from a respected California newspaper. An interesting glimpse of history and not as outdated as you’d expect.