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Author:Pete Mugleston– Mortgage Advisor, MD
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Transferring The Mortgage To The Llc
Once you file the documents to organize your LLC with your state, the company becomes a legal entity that can enter into contracts and borrow money in its name. This means your LLC can also hold title to real estate.
If your mortgage company allows your LLC to assume the mortgage, the first step is to prepare a deed transferring ownership of the property. The lender requires that the LLC sign an assumption of mortgage that creates a legal obligation for the debt between the mortgage company and the LLC. The assumption of the mortgage must be filed with the county real property offices with the deed transferring title to the property.
The Ins And Outs Of Transferring A Mortgage
Can I move the mortgage to a family member? Can I transfer my mortgage to my children? These are questions that are often asked when people think of transferring or moving their mortgage. For lenders, transferring a mortgage means to move your mortgage to a different property – also known as porting a mortgage. But you may also be thinking about transferring your mortgage to another person instead.
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How Do I Transfer My Mortgage To Somebody Else
If you simply want to transfer your own mortgage to another person, it is possible, but there are a few strings attached. This is known as gifting a property.
Lenders will only agree once the original mortgage has been settled. Typically, youre removing yourself from the mortgage by repaying the loan in full. The new homeowner will then take out a new mortgage on the property. Some lenders may only agree when its time to remortgage.
Other scenarios involve parents adding their children to the deeds of a property. This can provide children with financial security. Again, this can be done using a transfer of equity. Some families will also do this for reasons involving inheritance tax.
Transfer Of Equity When Theres A Mortgage
A transfer of equity is where ownership of a property is transferred, but the original name on the title deeds is not removed. A transfer of equity might occur when one . This is called a 1:2 transfer. It can also occur when a couple is divorcing, and one name is being removed from the title deeds. This is known as a 2:1 transfer. If there is a mortgage on the property, the people who are liable for this mortgage will change.
New owners added to the title deeds of a property will be liable for the mortgage. Therefore the mortgage lender will need to know they can trust this new owner. Because of this, the new owner will have to pass the lenders eligibility checks. These will vary depending on the lender and the mortgage. A standard eligibility check will include whether they have:
- Enough income to be eligible for the current mortgage
- Passed a credit check
- Have UK residency
- Are appropriate age
This can be quite simple, as often the lender will be looking at your combined income of you and who you are living with. This is often a spouse or civil partner, which usually means your joint income is either the same as when the mortgage was agreed or higher. The new joint owners would confirm their liability for the mortgage in the transfer deed. The lender can give their consent through this transfer deed, or in a separate confirmation letter.
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I Want To Transfer My Mortgage To A Family Member
The good news is that transferring a mortgage from one person to another is usually possible and, with the help of a professional mortgage advisor, the process can be straightforward, which means you can also transfer a mortgage to a friend or family member in the UK.
This can be done through a Transfer of Equity without remortgaging, but the new person who is joining the mortgage will need to satisfy the lenders affordability and eligibility assessments.
Transferring a mortgage to a friend or family member is often done for purposes such as inheritance tax planning. Under those circumstances, its important to speak to a tax advisor before anything is agreed. Its also possible to gift a property to a relative, even if theres still a mortgage in place on it. The outstanding mortgage balance would, however, need to be paid off as part of the transaction or before the property changes hands.
Is My Mortgage Transferable
To find out if your mortgage is transferable, assumable or assignable, its best to contact your lender and ask.
Most lenders would prefer not to do a loan transfer, as it doesnt benefit them in any way unless the buyer is at risk of being in default, says Dustin Singer, a real estate agent with RE/MAX Citylife and an investor in Pittsburgh.
Make no mistake: Most mortgages are not transferable from one borrower to another. Thats true of conventional loans, which are not government-insured , as well as conforming loans that meet funding criteria for Fannie Mae and Freddie Mac.
These types of loans tend to use a due-on-sale clause, which requires a loan to be repaid in full or conveyance of the full interest in a property to allow the mortgage transfer, says Segura. In other words, the loan must be fully repaid, and a new mortgage would need to be executed to achieve a transfer.
FHA, VA and USDA loans, on the other hand, are usually assumable, and therefore might allow for a transfer under certain conditions.
FHA loans are typically assumable but depend on the current state of the loan and the creditworthiness of the new borrower at the time of attempted transfer, says Segura, adding that to complete the transfer, the new borrower would have to go through the application process and may need to have a property appraisal done, as well.
USDA loans may also be transferable pending lender approval.
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Alternatives To A Mortgage Transfer
Instead of transferring a mortgage, there may be better options to pursue, including buying the home from the original borrower with a new loan, says Singer. The sale would proceed with the new borrower completing a loan application for a loan amount in line with the existing mortgage.
It might be smarter for the prospective new borrower to buy the property from the existing owner and apply for a new mortgage on their own, especially if interest rates and terms are more favorable than for the current mortgage, says Singer.
Alternatively, you can try to add another name to your mortgage if your lender allows, but most experts advise against this strategy. Thats because while this method enables a second party to legally make payments, your name would still be on the loan and youll remain liable for any unpaid balance.
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Youll Still Have To Make A Down Payment
Just because the mortgage is going to smoothly change hands without the usual closing costs doesnt mean you dont have to come up with a down payment.
Traditionally, when someone assumes a mortgage, the second party pays off the original borrowers equity in the form of a cash down payment. Lets say the original borrower took out a mortgage in the amount of $400,000 and has since paid it down to $320,000.
In the typical situation, the second party would be expected to pay the original borrower a down payment of $80,000 in cash for their equity.
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How A Transfer Of Mortgage Works
A buyer may want to take on an older mortgage because such a transfer could let them take advantage of previous interest rates that may have been lower than the current market rates. A transfer of the mortgage, if completed successfully without challenge or stipulations, would not change the terms or length of the loan, leaving just the remaining outstanding balance to be paid off. Through a transfer of the mortgage, a buyer might also avoid having to pay closingcosts that are associated with buying a home with a new mortgage.
Not all mortgages are eligible for transfer. If it is, the mortgage is said to be “assumable.” In order to transfer a mortgage, the mortgage lender will need to verify that the person or entity that will assume the loan has adequate income and credit history to be able to make payments in a timely manner.
If a borrower is not allowed to transfer a mortgage, due to the loan’s underwriting, they may need to explore other options to avoid foreclosure. For example, they could work with their lender to see if it is possible to add another borrower/owner to the mortgage, which would enable him/her to make payments toward the unpaid loan balance. Or they could sell the home and have a potential buyer, colleague, family member, or another entity agree to make up any difference between the home’s sale price and the unpaid loan balance.
Assuming A Loan That’s In Default
If a borrower is behind in mortgage payments at the time of the transfer, then the person assuming the loan could have to cure the default to prevent the foreclosure. Usually, the new owner will either pay the overdue amount in full, called “reinstating” the loan, or come to an agreement with the lender to catch up on the past-due amounts in a repayment plan or as part of a modification.
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Restrictions On Transferring Ownership Of A Property With A Mortgage
Besides passing your lenders eligibility checks, there are other factors that may mean you are not able to transfer a mortgage to someone else. The rules vary from lender to lender, but some common restrictions include:
- If the property is buy-to-let
- If the mortgage will have 3 or more borrowers
- If a person being removed from a mortgage will still be living in the property
It is a good idea to consult with your lender as soon as possible to ensure you are aware of any issues that could affect your ability to transfer ownership.
Stamp Duty Tax Implications Of Transfer Of Equity
If you want to transfer property into joint names after marriage, for example you could also be charged stamp duty. This happens when the house is subject to a mortgage. Even though no money changes hands, they are taking on half of the mortgage debt. As such, anything above the threshold will be subject to stamp duty land tax. Gov.uk use this example to illustrate:
- The owner of a property valued at £500,000 has an outstanding mortgage of £400,000. When they marry, they decide to transfer half the property to their new partner.
- This means their partner takes on half of the mortgage . This is referred to as chargeable consideration.
- If there was no outstanding mortgage in this case, no stamp duty would be owed.
If you are adding a name onto the title to your property, we highly recommend that a Deed of Trust is put in place to set out the ownership of the property, particularly if you are holding unequal shares. Our trust specialists in our private client team can advise on this further and our equity release team will be able to refer you if necessary.
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Gifting Property To Family Members
You could always gift the property to a family member and, in some jurisdictions, this may not attract stamp duty. It may, however, attract capital gains tax , especially if the property isnât your primary place of residence.
If thereâs a home loan over the property, it wonât transfer when ownership does. Youâll need to notify the lender of the change and pay out the home loan, even if that means having the new owner apply for a home loan to pay yours out.
Knowing If You Are Carrying A Transferable Mortgage
The best way to find out whether your mortgage is transferable, assumable, or assignable is to contact your lender. Most mortgages cannot be transferred from one borrower to another. Transferring a mortgage to another borrower is possible in several scenarios. The most common way of transferring a mortgage is to a member of an immediate family who owns the house, a relative who can afford to take the loan or an immediate family member after the original borrower has passed away.
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Where To Find One
Unfortunately, assumable mortgages are not widely available. If you have an FHA or a VA loan, you might be in luck, because they are assumable loans. Other conventional mortgages are rarely assumable. Instead, lenders use a due-on-sale clause, which means that you must pay off the loan when you transfer title to the property.
Lenders dont usually benefit from letting you transfer a mortgage , so they’re not eager to approve transfers. 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 easilypossibly at a higher pricethanks to those same benefits.
What Is A Transferable Mortgage
A transferable mortgage like the name suggests is a loan that can be transferred from one person to the other, subject to other conditions. A transferable mortgage is most commonly known as an assumable mortgage. The original borrower of the mortgage can handover the mortgage to another person, who agrees to pay the remaining amount at the same interest rate as the original borrower. After the assumable mortgage has been transferred to the other person, you no longer have the responsibility to pay it off. In case any issue arises, the lender will contact the new mortgage owner to resolve it.
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Assumable Loan Disadvantages And Dangers
Although you dont need a down payment to assume a loan, you still might need to come up with a big chunk of change to make the transfer. Since youre assuming only the existing loan amount, you are responsible for paying the seller for their equity in the home. The more equity a seller has, the more money the buyer has to pay up front.
For example, if the purchase price of the property is $300,000, but the seller has paid down the loan to $200,000, the buyer has to come up with the $100,000 difference that the seller has racked up in home equity.
If the buyers dont have that much cash on hand, they can take out a secondary loan, but that loan will be at the current higher interest rate and include standard closing costs, making the transfer much less attractive.
Another thing to watch out for is that the original borrowers still retain responsibility for the loan unless they have a release in writing from the lender. If they fail to get this release, they are still liable if the new homeowner fails to repay the loan, and the loan debt will still count against them if they attempt to take out a new mortgage. If you do go through a loan assumption, be sure to hold onto your release paperwork in case there is ever an issue down the line.
Not Usually But There Are Exceptions
Generally, personal loans cannot be transferred to another person because these loans are determined based on your and list of available sources of income. Some types of personal loans, such as signature loans, require your signature and use your promise to pay as collateral.
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Transferring A Mortgage To Family Or Relatives
If youre looking to move your entire mortgage to someone else, this is a different process from transferring equity and will take you off the ownership of the property.
Transferring your mortgage and property to a family member or relative while removing yourself from the mortgage, would typically take place as a sale or purchase. For example, if you and your partner wanted to transfer your mortgage and house to your children while removing yourself from the mortgage, this a separate process that would be completed with the support of your lender and solicitor.
Transferring your mortgage to your children, transferring your mortgage to a relative and transferring your mortgage to a parent all fall under this category. There are other exceptions, however.
Understanding Promissory Notes And Mortgages
Before you can fully understand what it means to assume a loan, you have to understand the difference between a promissory note and mortgage or deed of trust.
People often use the term “mortgage” to refer to both the promissory note and mortgage. But the note is the document that creates the obligation to repay the loan. The mortgage, on the other hand, gives the lender a way to enforce that promisethat is, the lender may foreclose and use the proceeds from the foreclosure sale to repay the loan.
Following a foreclosure, in a majority of states, the lender can go after the borrower for the deficiency between the foreclosure sale price and the borrower’s total debt. The promissory note establishes a borrower’s liability for the deficiency.
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