Can You Transfer Your Mortgage to Another House?

Transferring a mortgage directly from one house to another is not possible. Instead, moving your existing home loan to a new property involves specific financial processes. This article details mortgage portability and assumable mortgages, outlining eligibility, application procedures, and financial considerations.

Understanding Mortgage Portability

The concept of “transferring a mortgage” typically refers to either mortgage portability or an assumable mortgage. Mortgage portability allows a homeowner to carry over existing mortgage terms, like the interest rate, from a property they sell to a new one they purchase, usually with the same lender. This involves reapplying for a new loan on the new property, where the lender reassesses the borrower’s finances and the new home’s value. This process often helps avoid early repayment charges.

An assumable mortgage permits a new buyer to take over the seller’s existing mortgage, including its balance, interest rate, and terms. These loans are rare in the conventional market, primarily found with government-backed programs like Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans. For an FHA loan assumption, the buyer needs a credit score of at least 580 and a debt-to-income ratio of 43% or less, and the lender must approve their creditworthiness. The new borrower also pays the seller the difference between the home’s market value and the outstanding loan balance (the seller’s equity).

Eligibility and the Application Process for Porting

Homeowners considering mortgage portability must confirm their current mortgage allows it, as not all are portable. Lenders assess eligibility based on payment history, credit score, and debt-to-income ratio. The new property must also meet lender criteria, including an appraisal. Even if portable, approval is not guaranteed, as the lender re-evaluates the borrower’s finances and the new property.

The application process for porting a mortgage requires a comprehensive re-assessment of the borrower’s finances, similar to applying for a new loan. Homeowners must notify their existing lender and submit a new application for the new property. This involves a new credit check, updated income verification, and detailing current debt levels. Lenders request documentation like W-2 forms or tax returns (past two years), recent pay stubs (three to six months), and bank statements (two to three months) to verify income and assets.

A new property appraisal confirms its value and suitability. This review ensures the borrower meets updated lending standards and the new property aligns with risk parameters. If the new home is more expensive, additional borrowing may be at current market rates, potentially blending the overall interest rate. The sale of the current home and purchase of the new one must align within a specific timeframe, often 30 to 120 days, for smooth porting.

When a New Mortgage is Necessary

A new mortgage is the primary option when portability is not feasible or advantageous. This occurs if the current mortgage contract lacks a portability clause, common for some variable-rate or specialist loans. A new mortgage may also be necessary if financial circumstances have changed, disqualifying the borrower from porting, or if the existing lender doesn’t offer portability. It’s also required if the new property’s value or type doesn’t meet the current lender’s criteria for a ported loan.

If market conditions have shifted, a new mortgage might offer more favorable terms, such as lower interest rates or more flexible loan products. Obtaining a new mortgage involves researching and comparing offers from various lenders. The process includes pre-approval, application, underwriting, and closing. This requires submitting financial documentation, credit checks, and a property appraisal.

Financial Considerations for Your Next Home Loan

Several financial factors should be considered when deciding between porting a mortgage and obtaining a new home loan. Interest rates are a primary consideration; if current market rates are lower than an existing mortgage, a new loan might lead to long-term savings, despite new closing costs. Conversely, if current rates are higher, porting a low-interest mortgage can be financially beneficial.

Closing costs are an expense in both scenarios, typically 2% to 6% of the loan amount for a new mortgage. While porting may reduce some fees, like early repayment charges, it does not eliminate all costs. Borrowers should anticipate paying for appraisal fees, legal fees, and administration or porting fees. If the new home is more expensive, additional borrowing will likely be at current market rates, potentially blending the overall rate. If downsizing, a partial payout of the existing mortgage might trigger prepayment penalties on the unported amount.