Enough research will tell you that most loans are not transferable as a result of the “due on sale” clause on them. What this means is that when the property on the loan is sold, then the entirety of the loans becomes due.
But you will also want to know that some loans do not have these due on sale clauses which make them transferable from the seller to the buyer. These loans are known as the “assumable loans.” There are three types of assumable loans:
- VA loans – these loans are designed in such a way that they consider the service members who are constantly on the move as a result of their careers. Most of the loans that were closed before 1988 can still be moved freely without the need for any approval from the lender. The loans that are closed after that time, however, need approval from the lender to be closed.
- FHA loans – these loans can also be transferable without the need of any approval from the lender if they were closed by December 1989. Otherwise, any other loans that were closed after that time need approval from the lender.
- USDA loans – lender approval is required for these loans to be transferable.
Reasons why you want to transfer your mortgage
Taking over a loan usually saves a lot when it comes to closing costs. The buyer will not have to part with the fees to originate a new loan plus all the taxes and all the other closing costs involved. The buyer only has to pay the nominal fee that will assume the already existing loan. You do not even need to pay the down payment in this case.
There are, however, a couple of complications that come with mortgage transfers that you need to know about before you dive into the whole process.
Merits and demerits of mortgage transfers
You may not need to pay the down payment fees, but you will still need to pay a huge sum of cash to make the transfer.
As the buyer, you may not have enough cash at the moment to make the transfer. You have the option of taking a secondary loan which can cover all of the expenses. But these loans are usually accompanied by high-interest rates, which even makes the whole transfer process less attractive.
You also need to know that the original borrowers in the mortgage still retain some sense of responsibility for the loan unless there is a release that is in writing from the loan lender stating otherwise.
When the due on sale clause doesn’t apply
About every loan apart from the VA, USDA, and the FHA have due on sale clauses. However, there are some types of loan transfers that have exemptions. They have been listed below:
- Transfer to a relative in case of death of the original borrower
- Transfer to your children or spouse
- Transfer to your ex-spouse if he/she continues to live there
- Transfer to you in living trust if you stay in the property
Are you in the market to purchase a home in Rancho Santa Margarita, Coto de Caza, or Mission Viejo? Click here to talk to the Kovacs Connection Team today!