transfer of loan from one person to another

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• Frequently Asked Questions (FAQs)

The Bottom Line

Personal Loans

Can Personal Loans Be Transferred to Another Person?

Not usually, but there are exceptions

Generally, personal loans cannot be transferred to another person because these loans are determined based on your credit score 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. There are rare exceptions to this rule, such as certain car loans and home mortgages.

Key Takeaways

• In most cases you cannot transfer a personal loan to another person.
• If your loan has a co-signer or guarantor, that person becomes responsible for the debt if you default on the loan.
• Defaulting on a personal loan is seriously injurious to your credit score.
• Car loans and mortgages can be transferred to another person under certain circumstances.

Transferring Mortgages and Car Loans

Mortgages and car loans are unlike other types of personal loans in that they can be transferred. However, they can only be transferred to another borrower under certain circumstances. For one thing, the new borrower must be able to qualify for the loan. If it’s a mortgage, they will need to requalify, which means having a credit score equal to or greater than the original borrower’s.

A transferrable mortgage must be assumable , which means that the loan agreement allows for the debt to be transferred to another person. Not all mortgages meet this criterion; in fact, such mortgages are rare. However, a new borrower can start over with a brand new mortgage, which the new borrower would use to pay off your mortgage. They would then have a lower mortgage payment and potentially a shorter repayment period.

It is somewhat easier to transfer a car loan to another person, either with the same lender or a new one. If the new borrower can qualify for the car loan, the lender may agree to transfer the loan into their name. However, the new borrower may prefer to get a new car loan from another lender. The new lender will pay off your car loan, and the new borrower will benefit from lower payments and a shorter repayment period.

While you cannot transfer most personal loans to another person, some types are transferrable in certain situations.

What Happens When You Have a Co-Signer or Guarantor?

Although a borrower cannot transfer the responsibility of a personal loan, another person can become liable for the remaining balance of someone's personal loan when they take out the loan with a co-signer or guarantor . If you default on the loan, you make the co-signer or guarantor liable for unpaid balances.

Co-signers are every bit as legally responsible for the personal loan as the person to whom the loan is issued. While lenders need to prove they pursued the primary borrower extensively before contacting the guarantor, said guarantor is still responsible for any unpaid balances.

What Happens if You Do Not Repay a Personal Loan?

When you do not pay back a personal loan, particularly a signature loan, your credit score takes a major hit . Your lender can send the loan to a collection agency, which will make your life very stressful, and report your default to the three credit bureaus: Experian, Equifax, and TransUnion.

A loan default stays on your credit score for seven years after the final payment date. To prevent long repayment periods, a lender can include a  set-off clause  in the personal loan contract. A set-off clause allows the lender to seize your funds from a specific bank account.

In order to mitigate the risk of defaulting on a loan, it's important to know exactly what you can afford to pay back before you agree to anything. A personal loan calculator is an excellent tool for determining what the monthly payment and total interest should be for the amount you intend to borrow.

Are All Mortgages Transferrable?

No. In order to transfer your mortgage, it must be assumable. To be assumable, the mortgage must allow the debt to be transferred to another person. The other person must be able to qualify for the mortgage on their own credit as well.

What Happens to My Personal Loan When I Die?

If you die with a personal loan, the debt is transferred to your estate, which will then have to pay your creditors. The only way that the debt is not paid is if there is nothing left after the total estate has been liquidated. The debt does not pass on to descendants and relatives.

How Long Will My Personal Loan Default Stay on my Credit Report?

Defaulted loans typically stay on a credit report for seven years.

Most personal loans cannot be transferred to someone else. There are rare exceptions to this rule, such as mortgages and car loans, but even then, it is easier to qualify for a new mortgage or car loan to pay off the existing loan. If considering a personal loan, make sure you can repay the loan in full.

USA.gov. " Credit Issues ."

Federal Trade Commission. " The Real Estate Marketplace Glossary: How to Talk the Talk ," Page 2.

Federal Trade Commission. " Cosigning a Loan FAQs ."

Equifax. " What Happens if I Default on a Loan or Credit Card Debt? "

Consumer Financial Protection Bureau. " Does a Person's Debt Go Away When They Die? "

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Can You Transfer a Mortgage to Another Borrower?

How To Change Names on a Loan

Assumable Mortgages

Where to find one, exceptions to the rule, unofficial transfers, your options, refinancing, frequently asked questions (faqs).

Image by Emilie Dunphy © The Balance 2020

When you sell a house or move out, it might make sense to try and transfer the mortgage to the new owner. Instead of applying for a new loan, paying closing costs, and starting over with higher interest charges, the new owner could take over the current payments.

Loans that you can transfer do exist. They are called "assumable loans." However, there are not many offered. Find out more about transferring a loan and what you can do if you need to transfer one, but it isn't assumable.

Key Takeaways

• You can transfer a mortgage to someone else as long as the loan is assumable.
• The new borrowers will be treated as if they were initiating a new loan for themselves.
• If your mortgage is not assumable, you still have options even if your lender says no.

If a loan is " assumable ," you're in luck: That means you can transfer the mortgage to somebody else. There is nothing written into the loan agreement that prevents you from completing a transfer. However, even assumable mortgages can be difficult to transfer.

In most cases, the new borrower needs to qualify for the loan. The lender will look at the borrower’s  credit scores  and  debt-to-income ratios to evaluate their ability to repay the loan. The process is the same as if the borrower was to apply for a brand new loan.

Lenders approved the original loan application based on your credit and income. They won't want to let you off the hook unless there's a replacement borrower who is just as likely to repay.

To complete a transfer of an assumable loan, request the change with your lender. You'll have to complete applications, verify income and assets, and pay a fee during the process.

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 don’t usually benefit from letting you transfer a mortgage (they lose interest payments that they would get from a new loan), 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 easily—possibly at a higher price—thanks to those same benefits.

There are some cases where you can transfer a loan with a due-on-sale clause. Transfers between family members are often allowed, and your lender can always choose to be more generous. The only way to know for sure is to ask your lender and review your agreement with an attorney.

Even if lenders say it’s not possible, an attorney can help you figure out if your bank gives you the correct information.

Switching out names on a loan only affects the loan. You'll still need to transfer the title using a quitclaim deed or any other steps required in your situation.

Federal Deposit Insurance Corporation (FDIC) laws prevent lenders from exercising their option to accelerate payment under certain circumstances. Review with your attorney to see whether you qualify to transfer without an accelerated payment. Several of the most common situations include transferring:

• To a surviving joint tenant when the other one dies
• To a relative after the death of a borrower
• To the spouse or children of a borrower
• As a result of divorce and separation agreements
• Into an inter vivos trust (living trust) where the borrower is a beneficiary

If you can’t get your request approved, you might be tempted to set up an “informal” arrangement. For example, you could sell your house, leave the existing loan in place, and have the buyer reimburse you for mortgage payments.

However, there are some issues with this. Your mortgage agreement probably does not allow this, and you might find yourself in legal trouble if your lender finds out. What’s more, you’re still responsible for the loan, even though you’re no longer living in the house.

What could go wrong? A few possibilities include:

• If the buyer stops paying, the loan is in your name, so it’s still your problem. The late payments will appear on your credit reports, and lenders will come after you.
• If the home is sold in foreclosure for less than it’s worth, you could be responsible for any deficiency.

There are other ways to offer seller financing to a potential buyer, including allowing a rent-to-own arrangement where part of the rent goes toward a down payment should the renter elect to buy.

If you can’t get a mortgage transferred, you’ve still got options, depending on your situation.

Death, divorce, and family transfers might give you the right to make transfers, even if your lender says otherwise.

Some government programs make it easier to deal with the mortgage if you're facing foreclosure—even if you’re underwater or unemployed. Contact the U.S. Department of Housing and Urban Development (HUD) to find out what applies in your situation.

If you’re getting divorced, you can ask your attorney how to handle all your debts and  how to protect yourself  in case your ex-spouse does not make payments. If you're not on the title but were married to the homeowner, a local attorney can help you determine what to do next if they have passed away.

You can transfer your home into a trust, but be sure to double-check with your estate planning attorney to ensure that you will not trigger an acceleration clause.

If a loan is not assumable and you can’t find an exception to a due-on-sale clause, refinancing the loan might be your best option. Similar to an assumption, the new borrower will need sufficient income and credit to qualify for the loan.

The new homeowner will need to apply for a new loan individually and use that loan to pay off the existing mortgage debt. You may need to coordinate with your lenders to get liens removed (unless the new borrower and new lender agree to them) so you can use the house as collateral, but it’s a good, clean way to get the job done.

Can you add a co-borrower to a mortgage without refinancing?

No, to add a borrower to, or remove one from, a mortgage, refinancing is required . During the process, you'll be able to add the new co-borrower to the mortgage and deed.  

Do assumable mortgages require a down payment?

Assumable mortgages require a down payment relative to what is owed on the house and its overall value. If the home is worth $200,000 with $100,000 left on the mortgage, the buyer will need to cover that cost as the down payment.

Federal Deposit Insurance Corporation. " Part 591—Preemption of State Due-On Sale Laws ."

Rocket Mortgage. " What Is an Assumable Mortgage? "

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In most circumstances, a mortgage can’t be transferred from one borrower to another. That’s because most lenders and loan types don’t allow another borrower to take over payment of an existing mortgage.

In some cases, though, a mortgage transfer is necessary and allowed, such as in the event of a death, divorce or separation, or when a living trust is involved.

What is a mortgage transfer?

A transfer of a mortgage is when a borrower reassigns an existing home loan to another person or entity.

“In essence, this transfers all responsibilities associated with the mortgage and lien on the property to somebody new,” says Rene Segura, head of consumer lending for FBX, the banking division of Informa Financial Intelligence, based in Dallas.

This transfer, or assignment, is usually only allowed when the mortgage is assumable , says Rajeh Saadeh, a Somerville, New Jersey-based real estate attorney. When transferring an assumable mortgage, the new borrower agrees to make all future payments at the original interest rate. The transfer typically severs any legal obligations the original borrower has to the loan.

Is my mortgage transferable?

To find out if your mortgage is transferable, assumable or assignable, contact your lender and ask.

“Most lenders would prefer not to do a loan transfer, as it doesn’t benefit them in any way unless the buyer is at risk of being in default,” says Dustin Singer, a real estate agent and an investor in Pittsburgh.

Make no mistake: Most mortgages are not transferable from one borrower to another. That’s true of conventional loans, which are not government-insured (meaning they’re not an FHA, VA or USDA loan), 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.”

Loans that are usually assumable, meaning you can transfer them in some cases, include:

Keep in mind there are exceptions to this rule, so not all loans will be transferable.

“ 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.

For VA loans , this same process applies, but only if the loan closed before March 1, 1988. VA loans closed after that date may require approval by the lender or loan servicer.

USDA loans may also be transferable pending lender approval.

Exceptions to the rule

Even if your mortgage has a due-on-sale clause and isn’t assumable, there are certain circumstances under which your lender may approve a transfer. These include:

• Death of a spouse, joint tenant or relative
• Transfers between family members, including the borrower’s spouse or children
• Divorce or separation agreements in which an ex-spouse continues to live in the home
• Living trust arrangements in which the borrower is a beneficiary

For these mortgage transfers to work, the new borrower needs to be added to the property’s deed, the deceased owner needs to be removed from the deed or a spouse relinquishing ownership must sign a quitclaim deed.

When a mortgage transfer makes sense

Common situations for transferring a mortgage involve transferring to an immediate family member who has an ownership stake in the home, a family member who is better suited financially to take on the loan or to a relative or survivor after the death of the original borrower.

“All of these scenarios are still on a case-by-case basis in which the lender will need to approve the transfer,” says Segura.

“Many people try to assume mortgages so they can take advantage of lower interest rates than what they would qualify for today,” says Than Merrill, founder of FortuneBuilders in San Diego.

How to transfer a mortgage

If your mortgage qualifies for a transfer, here’s how the process might look:

• Contact your lender. Before doing anything else, reach out to your lender to check that your mortgage is transferable.
• Consider legal representation. Transferring a mortgage can be complicated. If you’re nervous about doing it alone, you can hire an attorney to help you navigate the process.
• Begin the transfer process. After confirming your eligibility, you can work with your lender to start the transfer. Depending on your loan and lender, this can include completing paperwork and verifying that you’re current on your payments. The lender will also assess the new borrower’s credit profile.
• Complete the transfer. Mortgage transfers aren’t instant. Until yours is approved, don’t forget to keep making loan payments and comply with any follow-up instructions sent by your lender.

What are transfer taxes?

Some state and local governments impose a one-time real estate transfer tax that must be paid any time a property is transferred from one person to another. In many cases, the seller must cover transfer taxes, but this varies by jurisdiction. The amount of the tax also depends on where you live, but it’s usually either a flat rate or a percentage of your home’s sale price.

Alternatives to a mortgage transfer

Instead of transferring a mortgage, consider these alternatives:

• Buying the home from the original borrower : The person who wishes to assume the loan applies for a new mortgage and buys the home from the previous borrower. However, this means dealing with new loan terms and interest rates .
• Adding a second borrower : This option involves adding the new borrower to the loan. However, it won’t remove the original borrower, so they’ll remain liable for the debt.
• Refinancing and adding a borrower : Refinancing your mortgage and adding a second borrower lets you adjust the loan’s terms and rate. It may be easier to add another borrower by refinancing. However, this also has the drawback of not freeing the original borrower from their liability for the loan.
• Unofficial transfers : With this option, you can have the new borrower send payments to the original borrower, who then pays the loan. However, this is a bad idea because the initial borrower is liable for the debt and has little recourse if the new borrower stops paying. It may also break the terms of the mortgage, especially if the original borrower moves out.

Can I take over a mortgage from my parents?

Do i have to notify my lender of the transfer, why would a bank transfer a mortgage, bottom line.

Transferring a mortgage can simplify things: The new borrower wouldn’t have to apply for a new loan, pay for closing costs or possibly risk paying higher interest rates. However, many kinds of mortgages aren’t transferable, and if yours is, you’ll have to prepare for a lot of paperwork to make it official.

“The mortgage transfer will require a lot of documentation, with several new guidelines and criteria on the loan,” says Segura. “Read all documents thoroughly for any potential changes on the mortgage rights.”

Also, keep in mind that a mortgage transfer doesn’t change the debt obligation on the loan; the new borrower still needs to pay off the same outstanding balance.

If in doubt, consider discussing this option with a real estate attorney and skilled financial professional before proceeding.

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