Can I Sell My Mortgage to Someone? Here’s How
Understand how homeowners can navigate transferring their mortgage or selling property with an existing loan.
When selling a property, homeowners often wonder about their existing mortgage. Homeowners cannot simply “sell” their mortgage like a lender. Instead, they typically transfer the loan’s responsibility to another party when selling the property. This process depends on the mortgage type and the lender’s policies. Various mechanisms exist for handling the outstanding loan when a property changes hands, each with specific requirements and implications for both the seller and the buyer.
Understanding Mortgage Assumption
Mortgage assumption is a process where a new borrower formally takes over the existing mortgage from the original homeowner. This includes inheriting the original loan terms: interest rate, remaining principal, and payment schedule. The original loan remains in place, simply changing who is responsible for its repayment.
Mortgage assumption is not an automatic right; it requires explicit lender approval. The lender must qualify the new borrower through a rigorous underwriting process, similar to a new mortgage application. This involves assessing the new borrower’s credit score, income, and debt-to-income ratio to meet financial criteria.
Certain mortgages are generally assumable, making this a viable option for some sellers. Government-backed loans (FHA, VA, USDA) typically allow for assumption. Even with these, specific conditions and lender approvals are necessary. For instance, FHA loans issued after December 1, 1986, and VA loans require a creditworthiness review for the new borrower.
Most conventional mortgages are generally not assumable due to a “due-on-sale” clause. This clause grants the lender the right to demand immediate and full repayment of the outstanding loan balance if the property is sold or transferred without their consent. This protects lenders by allowing them to re-evaluate loan terms or require a new loan at current market rates upon ownership change.
For the original borrower, obtaining a “release of liability” from the lender is important. Without this formal release, the original homeowner remains legally and financially responsible for the debt. If the new borrower defaults, the original seller could still be held liable for payments. The release of liability transfers all financial obligation solely to the new borrower, protecting the seller from future repercussions.
The mortgage assumption process involves the buyer submitting an application and financial documentation to the current lender. The lender conducts an underwriting review, and if approved, both parties sign an assumption agreement. While similar to a traditional home purchase closing, an assumption often involves fewer closing costs, as original loan origination fees are not re-charged.
Selling Your Property Without Mortgage Assumption
For most homeowners, directly transferring their mortgage through an assumption is not common, especially with conventional loans containing due-on-sale clauses. The standard method for selling a home with an existing mortgage involves paying off the outstanding loan balance with the property’s sale proceeds. This is the most frequent way to handle a mortgage when a home is sold.
The process begins with listing the property and receiving an offer. Once accepted, the buyer secures their own financing, which may involve a new mortgage or a cash purchase. This new financing is distinct from the seller’s existing mortgage; it is a separate loan agreement with their chosen lender.
At the sale’s closing, the outstanding balance of the seller’s existing mortgage, including accrued interest and fees, is paid off using sale proceeds. A closing agent or attorney manages this payoff, ensuring funds are disbursed to the seller’s mortgage lender. Upon full payoff, the original mortgage lien is released, extinguishing that debt.
After the mortgage is satisfied, any remaining funds from the sale, after accounting for closing costs and real estate commissions, become the seller’s net proceeds. Seller closing costs range from 2% to 4% of the sale price, not including 5% to 6% for real estate agent commissions. These costs often include title insurance, attorney fees, and transfer taxes. Net proceeds directly impact the cash the seller receives.
This standard sale process differs from a mortgage assumption. In a typical sale, the seller’s mortgage is paid off and eliminated, not transferred. The buyer starts fresh with their own financing or cash purchase. This method ensures the original homeowner is fully released from their mortgage obligations at sale.