Can You Sell Your House and Keep the Mortgage?

It is possible to sell a house while retaining the original mortgage, though these transactions differ from standard real estate sales where the mortgage is typically settled. Certain scenarios allow the original mortgage obligation to remain with the seller or be transferred to the buyer, introducing unique considerations for both parties involved.

Transferring an Existing Mortgage

A loan assumption allows a buyer to take over a seller’s existing home loan, assuming responsibility for the remaining payments and obligation. Loan assumptions primarily apply to FHA, VA, and USDA loans, which are generally assumable with lender approval.

Buyers must undergo a qualification process similar to applying for a new mortgage. The lender assesses the buyer’s creditworthiness, income, and financial health to ensure they can meet the loan terms, mitigating risk. Assumption fees vary by loan type and lender, such as FHA loan fees up to $1,800, and VA loan fees including a 0.5% funding fee.

Loan assumptions are less common, especially for conventional mortgages, which often include a “due-on-sale” clause. This clause allows the lender to demand full loan repayment upon property transfer, preventing assumption without lender approval. Lender approval is also necessary for government-backed loan assumptions.

Selling Property While Retaining Mortgage Obligation

In a “subject-to” sale, the property’s title transfers to the buyer, but the original mortgage remains in the seller’s name. The buyer takes possession and makes mortgage payments, but the seller remains legally responsible for the debt to the lender.

This transaction is often used when a buyer cannot qualify for new financing or when the existing mortgage has favorable terms. The buyer makes payments without formally assuming the loan, and the property’s legal title transfers to the buyer via deed, while the mortgage lien stays with the seller.

The “due-on-sale” clause, present in most mortgage contracts, allows the lender to demand immediate loan repayment if the property is sold without consent. While lenders may not always trigger it if payments are consistent, they retain this option. If triggered and the buyer cannot pay, foreclosure could result, impacting the seller’s credit.

The seller’s continued liability means their credit score can be negatively affected by missed buyer payments. This arrangement requires significant trust, as buyer default can lead to severe financial consequences for the seller. It separates property ownership from mortgage obligation, introducing risks.

Seller-Assisted Purchase Arrangements

Seller-assisted purchase arrangements, including seller financing or land contracts, involve the seller facilitating buyer financing while the seller’s original mortgage remains. The seller acts as a lender, providing a new loan to the buyer. The buyer makes payments to the seller, who then pays their original mortgage.

Seller financing is formalized with legal documents like a promissory note, outlining loan terms, and a deed of trust or mortgage to secure the loan with a property lien. The property’s title usually transfers to the buyer at closing, though some land contracts allow the seller to retain legal title until the loan is paid.

A wrap-around mortgage is a type of seller financing where the seller’s new loan to the buyer “wraps around” the existing mortgage. The buyer pays the seller on the new loan, and the seller continues paying their original lender. This can be advantageous for sellers who charge a higher interest rate. These arrangements differ from loan assumptions as they don’t directly transfer the original mortgage obligation.

Key Considerations for Sellers and Buyers

For sellers, understanding continued financial liability is important. In a “subject-to” transaction, the seller remains legally responsible for the original mortgage, and missed buyer payments can negatively impact their credit. Sellers should also consider tax implications, such as interest from seller financing being taxed as ordinary income. Comprehensive legal agreements, including promissory notes and deeds of trust, are essential.

Buyers often benefit from less stringent qualification and lower down payments. However, thorough due diligence is necessary. This includes understanding the underlying mortgage terms and recognizing a potential lack of direct relationship with the original lender in “subject-to” or seller-financed deals. Buyers should ensure agreements are legally sound, conduct title searches, and secure insurance. The lack of direct lender oversight places a greater burden on both parties to protect their interests through detailed contracts and legal advice.