Transferring the ownership of a property and transferring the mortgage debt is a huge difference. If you wish to put the mortgage debt in someone else's name, you will need to do two things: refinance and add that person to the title if he is not currently an owner. Mortgagors (the debtors) cannot assume a mortgage debt without a vested interest in the property -- that is, owning the property.
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Things you need
- Current mortgage paperwork
- Quitclaim deed (if necessary)
- Income documents (for new owner)
Execute a quitclaim deed if you need to add the new mortgage owner to the property. You can remain on the property, but whoever is taking over the debt must have a vested ownership. You will need a notary public to witness the quitclaim and notarise the document. See Resources for a sample quitclaim deed. This document must be recorded at your town's Registry of Deeds before a mortgage refinance can happen.
Calculate the debt-to-income ratio (DIR) of the new owner. If you are removing yourself from the loan, your income cannot be used to support the loan on paper. To figure a DIR, divide the total of all monthly bills by the person's gross monthly income. A refinance will not be possible, most likely, if his DIR not counting the mortgage exceeds 30 per cent or his DIR with the mortgage exceeds about 40 per cent.
Have the new owner get a copy of his credit report. Free credit reports are available at Annual Credit Report (See Resources). However, the new owner should also get a FICO score. This is a three-digit number between 300 and 850 that represents overall creditworthiness. Scores above 720 are excellent; scores below 600 are poor.
Research mortgage lenders. Use the new owner's credit as a guide. Banks and credit unions offer the best programs but cater only to borrowers with scores above 720. Finance companies will extend mortgages to customers with lower scores but will charge more in interest and fees.
Have the new owner refinance the loan in his name. At closing, if you are still a vested owner on the property, you will need to sign the Rescission Notice, which mandates a three-day window between closing and funding, and the mortgage itself, but not the mortgage note. You are no longer obligated to the loan.
Tips and warnings
- Another option for transferring mortgage ownership is a mortgage assumption. This involves someone simply taking over someone else's mortgage. If you have a loan backed by the Federal Housing Administration, it likely is assumable as long as you have had it for a few years. The lender has to approve the assumption, and the person assuming the loan will have to have a credit history and score at least as good as the current mortgage holder.
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