How to Transfer a Mortgage to a Home Buyer Without Losing Money
Is Transferring a Mortgage to a Home Buyer Possible?
If you’re selling a home with an existing mortgage, you may wonder, can the buyer take over my mortgage? The short answer: sometimes. Mortgage transfers, or loan assumptions, can be an effective way to attract buyers, but they come with key restrictions and costs.
In this guide, we’ll break down the process, explain which loans allow transfers, and discuss how to avoid unnecessary fees when transferring a mortgage to a home buyer.
1. When Can You Transfer a Mortgage to a Buyer?
Types of Mortgages That Allow Transfers
Some home loans are assumable, meaning the buyer can take over the seller’s existing mortgage under the same terms.
✔ FHA Loans – Government-backed loans that can typically be assumed with lender approval.
✔ VA Loans – VA loans are assumable, but the new buyer must meet eligibility requirements.
✔ USDA Loans – Some USDA loans allow mortgage assumptions, but the buyer must qualify.
Types of Mortgages That Cannot Be Transferred
❌ Conventional Loans – Most traditional home loans have due-on-sale clauses, requiring full repayment upon transfer.
❌ Jumbo Loans & Adjustable-Rate Mortgages (ARMs) – These loans rarely allow assumptions.
Example: John sold his home with an assumable FHA loan at 3.5% interest, making his property more appealing than others with current 6.5% mortgage rates. His buyer saved over $40,000 in interest by assuming the loan.
2. How to Transfer a Mortgage to a Home Buyer
Step 1: Check Your Loan Terms
- Review your mortgage agreement for an assumption clause.
- Call your loan servicer to confirm whether your mortgage is assumable.
Step 2: The Buyer Applies for Assumption
- The buyer must meet the lender’s credit, income, and debt-to-income ratio (DTI) requirements.
- Lenders may charge a loan assumption fee (usually 0.5%-1% of the loan balance).
Step 3: Finalizing the Transfer
- If approved, the buyer takes over the remaining balance, interest rate, and loan terms.
- You must ensure the lender removes you from the mortgage liability.
Pro Tip: Always request a formal release of liability from your lender to protect yourself from future obligations after the transfer.
3. Costs & Fees to Watch Out For
Loan Assumption Fees
- Some lenders charge an assumption fee ranging from $500 to $2,000.
- Government-backed loans (FHA, VA) may have lower assumption fees.
Closing Costs
- Title transfer fees, escrow fees, and recording fees can cost 2-5% of the loan balance.
- Sellers can negotiate to have the buyer cover some or all closing costs.
HOA & Property Tax Adjustments
- Some HOAs require buyers to pay a capital contribution fee when taking over a property.
- Property taxes are prorated at closing—make sure there are no outstanding tax liens.
Case Study: A buyer assumed a VA loan and paid only $900 in lender fees, compared to $8,000 in traditional loan closing costs. This made the home far more attractive than competing listings.
4. Alternatives If You Can’t Transfer a Mortgage
If your mortgage isn’t assumable, here are some alternatives:
Option 1: Seller Financing
- The seller acts as the lender and allows the buyer to make monthly payments directly to them.
- This works best for sellers who own the home outright or have low remaining balances.
Option 2: Lease-to-Own Agreements
- The buyer rents the home with the option to purchase later.
- A portion of each rent payment goes toward the future purchase price.
Option 3: Refinancing Before Selling
- The seller refinances into a new assumable mortgage before listing the home.
- This strategy works if current interest rates are lower than the seller’s existing rate.
Final Thoughts: Should You Transfer Your Mortgage?
If your mortgage is assumable and the buyer qualifies, a mortgage transfer can save thousands in interest and closing costs. However, if a transfer isn’t an option, consider alternatives like seller financing or a lease-to-own agreement to make your home more appealing to buyers.
Before making a decision, contact your lender and explore your options.
