You own a lovely piece of real estate, but you had to take out a mortgage to purchase it. Nothing out of the ordinary about that. However, now circumstances have changed. You still owe on the mortgage, but now you either want to sell the real estate to someone else or you have been recently married or entered into a partnership and want that person to be put on the mortgage. You will need to work with your lender to add that person to the mortgage. The process is called "assuming" a mortgage; it adds a person to the mortgage, but remember that you are still liable for the debt.
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Contact your lender and determine whether an assumption of the mortgage is possible. The terms of your mortgage are set forth in the document you and the lender signed. Mortgage assumption has become the exception rather than the rule, but mortgages are assumable. You should check the exact language before proceeding further.
Inform your lender that you intend to add a person to the mortgage and provide any necessary information, such as that person's contact information and financial situation, which includes credit scores and employment information.
Ask your lender to modify the terms of your agreement if the mortgage is not assumable or if there is an acceleration clause. An acceleration clause makes the entire amount due if the borrower transfers his or her interest, such as by adding a person to the mortgage.
Arrange a meeting between your lender, the person you wish to add to your mortgage and yourself.
Sign a new mortgage document indicating that the person you want to add to the mortgage is assuming the mortgage. Note that when a person assumes a mortgage, you as the original borrower are still liable for the debt on the property. You will continue to be liable unless the lender fully releases you from liability, which does not happen often.
Enter into an agreement with the person you added to the mortgage to reflect his or her ownership interest in the house. For example, if you are adding a child or a spouse to the mortgage, you should enter into an agreement reflecting what ownership interest, if any, that person will have. One way to do this is based on how much the added person is contributing. If the added person is paying half the rent, consider offering that person a 50 per cent ownership interest in the property. This contract will be between you and the added person; your lender simply wants the payment each month.
Tips and warnings
- Be sure that the person you want to assume your mortgage is financially responsible and capable of making the mortgage payments. If that person defaults on the mortgage, the lender can look to you for the deficient payments (and you would then have to find and sue the person who assumed the mortgage to recover what you pay to the lender).
- Note that assuming a mortgage or changing the terms of your mortgage is not a common process. Many lenders have strict rules regarding this and may flat out deny a request to add someone to your mortgage. The process will depend on the terms of your loan and your mortgage lender's policies.
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