Mortgage Money: Transfer Process And Procedures

A mortgage transfer occurs when another person or entity takes over an existing mortgage from the current holder. This can happen when the borrower or lender assigns the mortgage to another party. While not all mortgages are transferable, those that are assumable may be transferred to a new borrower with the lender's approval. The new borrower must meet the same qualification criteria as the original borrower, and the lender will usually require a credit check and income verification. Mortgage transfers by lenders are quite common, as they sell loans to free up funds to offer more loans.

How is mortgage money transferred?

Transferring a mortgage to another person

Mortgages that are eligible for transfer are considered "assumable". In order to transfer a mortgage, the mortgage lender will typically need to verify that the person or entity assuming the loan has adequate income and credit history to be able to make payments in a timely manner. The person taking over the loan will need to apply with the lender, who may check their credit, income, outstanding debts and employment.

Mortgage transfers are not common, and in most circumstances, a mortgage can't be transferred from one borrower to another. Most conventional loans are not eligible for transfer. However, assumable mortgages that can be transferred to another person or entity may include Federal Housing Authority (FHA) loans, U.S. Department of Agriculture (USDA) loans, and Veterans Affairs (VA) loans.

Mortgage transfers aren't instant and can take around two to four months to complete. They also require a lot of documentation. Most state and local governments impose a one-time real estate transfer tax that must be paid any time a property is transferred from one person to another.

Mortgages sold to other companies

It is common for mortgages to be sold to other companies or investors, and this is done to free up funds for the lender to offer more loans. The trading of mortgage-backed securities in the secondary mortgage market allows for a continuous flow of funds in the housing and financing markets. While homeowners cannot prevent their mortgage from being sold, they have rights under the Real Estate Settlement Procedures Act (RESPA) to receive information about the transfer.

Mortgages are financial instruments, much like bonds, that can be bought and sold between investors. This debt may be sold multiple times, and the borrower may not even realize it. The borrower's loan could be packaged with other loans and sold as part of a mortgage-backed security (MBS). MBS investors get income from the mortgage payments of the MBS loan portfolio, and mortgage lenders get cash to extend loans to new borrowers. When a mortgage is sold, a new company is typically buying the servicing rights.

The 'sale' of a mortgage usually means that the servicing of the mortgage has been transferred to a new company, meaning the borrower will be sending their monthly payments to a new company. The company that collects the monthly mortgage payment is known as the servicing company. Lenders who fund mortgages sometimes keep the loans on their books and function as the mortgage loan servicing company, but often they sell off their loans to other companies for servicing.

Federal banking laws allow financial institutions to sell mortgages or transfer the mortgage loan servicing rights to other institutions, and consumer consent is not required for them to do this. However, the lender does need to notify the borrower if their loan will be serviced by a different company. Both companies must send a notification no less than 15 days before the loan is transferred to the new servicing company. The new company must also provide contact details within 30 days after the transfer so the borrower knows where to send or make payments and how to get in touch.

Avoiding foreclosure

If you are unable to keep up with your mortgage payments, you may be able to avoid foreclosure by transferring your mortgage to another person or entity. However, it is important to note that not all mortgages are transferable, and it depends on the type of mortgage you have and the lender's standards. Most conventional mortgages are not eligible for mortgage transfers.

• Contact your lender: As soon as you know you will have trouble paying your mortgage, contact your lender or loan servicer directly to discuss foreclosure prevention options. They may be able to work with you to create a financial plan or agree to alternative payment arrangements.
• Seek help early: Don't wait until you are unable to make payments. Government programs, housing counselors, and lawyers can help you understand your options and represent you in negotiations with your lender.
• Explore transfer options: If your mortgage is assumable, you may be able to transfer it to a child, spouse, or relative. This could be an option in cases of death, divorce, or remarriage.
• Refinancing: If you cannot transfer your mortgage, refinancing may be a possible option.
• Government programs: The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), offers loss mitigation programs to assist homeowners facing financial hardship or unemployment. The Making Home Affordable (MHA) Program is another government initiative that helps homeowners lower their monthly mortgage payments and get into more stable loans.
• Sell your home: You can sell your home and have the buyer or another entity make up the difference between the sale price and the unpaid loan balance. However, lenders may include a due-on-sale clause, requiring the remaining balance to be paid off when the property is sold.

Be cautious of ads or websites that offer to help you avoid foreclosure but ask for money upfront, as these may be scams. Instead, seek help from legitimate sources, such as government programs, housing counselors, or your lender.

Adding or removing a borrower

When adding a borrower, the new borrower will typically need to complete a loan application and undergo a credit check. They will also need to provide financial documentation to demonstrate their ability to make timely payments. The lender will assess the new borrower's financial situation and determine whether they meet the loan requirements. In some cases, an appraisal of the property may also be required.

Removing a borrower from a mortgage can occur in specific circumstances, such as in the event of death, divorce, or legal separation. In these cases, the borrower's name can be removed from the mortgage note, ending their financial obligation. This can be done through a release of liability, where the remaining borrower continues paying the mortgage as-is, or by refinancing the mortgage with a new loan and terms.

It is important to carefully review the documentation and understand the requirements and potential risks associated with adding or removing a borrower to a mortgage. Consulting with a financial professional or legal expert is always recommended before making any significant changes to a mortgage agreement.

Transferring a mortgage to a family member

Firstly, it is important to note that not all mortgages are transferable. Most conventional mortgages are not transferable, and lenders will only approve a transfer in a few situations. Mortgages backed by Freddie Mac or Fannie Mae are generally not assumable, for example. However, some lenders do allow for porting, and Federal Housing Authority (FHA), Department of Agriculture (USDA), and Veterans Affairs (VA) loans are often assumable.

If you are transferring a property with an outstanding mortgage to a family member, you will need to inform your lender. They will typically require you to pay off the mortgage before the transfer. The new owner would then need to take out their own mortgage to pay off the original loan. This process is known as loan portability and is relatively straightforward compared to other methods.

Another option is to create a trust, with the sole asset being the property in question. The family member would become the successor trustee upon the current owner's passing. This option may be exempt from certain taxes, but it is important to note that lawyer fees may be equal to or more expensive than transfer taxes.

Selling the property to a family member is another option, and this can be done at any agreed-upon price. This is known as a favourable purchase agreement. For example, if you owe $100,000 on a property worth $600,000, you could sell the property to a family member for that amount, plus any associated fees and charges.

It is important to note that stamp duty is still payable on the property's current market value, even if it is transferred for less than market value. A valuation may be required to calculate the proper amount for stamp duty purposes, and this valuation fee is payable by the seller.

In summary, while it is possible to transfer a mortgage to a family member, it is a complex process with potential risks and costs. It is important to carefully consider all options and seek professional advice before proceeding.

Frequently asked questions