How do you take over the mortgage on a property you do not own?

By Michael Jensen, Mortgage and Finance Guru

Edited by Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Updated October 20, 2020

Taking over a mortgage on a home you do not own is very complicated but possible if you follow the right steps.  Before I explain how that process works, there are a couple of important points to keep in mind.

First, you cannot take over (or take out) a mortgage on a property you do not own.  You need to hold at least a partial ownership interest in a property to be eligible for a mortgage secured by that property.  So if you want to take over a mortgage, your first course of action is to establish an owner interest in the property.

Second, aside from FHA loans, almost no mortgages are assumable which means you cannot transfer the mortgage to a different person or add someone to the mortgage without the lender's approval.  Lenders are very reluctant to grant assumption requests or change the borrowers who are responsible for the loan.

This is why in the vast majority of cases, you cannot take over a mortgage or add someone to the note.  If you want to change the borrowers listed on a mortgage you are almost always required to refinance the existing loan.  Instead of taking over the loan, you put a new mortgage in place with new borrowers. 

Now that you understand the challenges involved, if you want to take over the mortgage on a property you do not currently own, follow the process outlined below:

Step 1: Acquire an Ownership Interest in the Property Through a Quit Claim Deed. Because you cannot get a mortgage on a property you do not own, you need to acquire an ownership interest in the property. The easiest way to accomplish this is through a quit claim deed.

A quit claim deed is a legal document that is filed with a county government that conveys ownership title in a property. After the quit claim deed is recorded by the county recorders office, you hold a full or partial ownership interest in the property.

Please note that the current property owner needs to sign the quit claim deed for ownership of the property to be transferred.  It may be helpful to work with a real estate attorney to file the quit claim deed although you may also be able to do it on your own by working with your county recorders office.

It is important to highlight that when you change a property's ownership, the property transfer can trigger an alienation clause -- also known as an acceleration clause -- in the mortgage note. An alienation clause allows the lender to require the borrower to pay off the outstanding mortgage balance in full.

You are going to need to refinance the mortgage anyway so this is less of a concern but it may impact your timing.  You also need to make sure that you can qualify for the refinance before you transfer ownership of the property because the last thing you want is to be required to pay off the current mortgage without having a way to do it.

Step 2: Set-Up a Joint Bank Account with the Current Property Owner and Make Six Months of Payments on the Existing Mortgage from the Account. If the lender does not trigger the acceleration clause and you only obtain a partial interest in the property it can be helpful to pay the mortgage for at least six months before you refinance.  Lenders usually require a new property owner to own the property for at least a six months before you can qualify for a mortgage.

Making mortgage payments from a joint bank account enables you to establish the required payment and ownership history.  We recommend that you make the monthly mortgage payments by check so that you can use the cancelled checks as verification as only the current property owner's credit report reflects the payments.

Also because the current owner remains on the bank account from which the payments are made, it reduces the risk that the lender exercises the alienation clause.  Even if you provide the money for the payments, using a bank account with the current owner's name may help you avoid potential issues with the existing lender.

Step 3: After Six Months, Refinance the Existing Mortgage. With a six month property ownership history you should be eligible to refinance the existing mortgage on the property.  When you refinance, you can change the borrowers on the mortgage and potentially remove the current property owner.

Please note that some lenders and loan programs require you to wait longer after taking an ownership interest in a property before you can refinance, if you do not live in the property -- for example if you rent out the property.  Additionally, you need to be able to qualify for the refinance based on your credit score, debt-to-income ratio, employment status and other factors.

The table below shows mortgage refinance rates and fees for leading lenders near you.  We recommend that you shop multiple lenders to find the best refinance terms.

I hope that you found this response helpful. Please note that I do not provide legal advice so you may want to consult a real estate attorney as well. From a mortgage standpoint, however, I believe the steps I outlined above should enable you to accomplish your goals.

Sources

"III.A.3.b.i. Assumability of FHA-Insured Mortgages."  FHA Single Family Housing Policy Handbook 4000.1.  Federal Housing Administration, January 2 2020.  Web.