Can I Transfer a House to My Son if It Still Has a Mortgage?

You can usually transfer the house by signing a new deed. The mortgage stays with you, the person who borrowed the money, and you remain responsible for the payments. Your son becomes the owner, but the lender doesn’t treat him as the borrower. A federal law typically prevents  the lender from demanding the full balance just because you gave the home to your child.

Who Is Responsible for the Mortgage?

You are. The mortgage stays in your name, since you signed it. Giving your son the house doesn’t move the loan to him. The lender still expects payments from you, and the house still serves as security for the loan. If payments stop, the lender can foreclose no matter who owns it.

Your son can help pay the loan, but the lender will still look to you. If you want your son to take over the loan itself, that’s a separate process — called an assumption — which requires the lender’s approval.

Can the Lender Demand Full Payment?

Usually not. Most mortgages include a “due-on-sale” clause, which lets the lender demand the full balance if you sell or transfer the home. A federal law, the Garn-St Germain Act, blocks this when a homeowner transfers a home to their child and the home is their residence.

How Do I Make the Transfer?

You sign a new deed naming your son as the owner and record it with your county. Some people use a deed that lets them keep the right to live in the home for life (a life estate). It still gives your son an ownership interest now, so it may count as a gift for Medicaid purposes. Unlike an outright gift, however, your son gets a step-up in basis, meaning his tax basis resets to the home’s value at your death rather than your original purchase price 

Others use one that passes ownership only at death (a transfer on death deed), which transfers nothing during your life. Whether the state can recover Medicaid costs from the home after your death (estate recovery) also varies by jurisdiction. The right choice depends on your goals and your state.

Can Transferring My House Cause Any Other Issues?

Yes, gifting a home can affect both your taxes and any Medicaid eligibility you may be relying on.

• Taxes: A gift of a house may require a gift tax return. Your son may also lose the “step-up in basis,” a tax break that resets the home’s value for tax purposes when it’s inherited. Without it, he could owe more tax when he sells.

• Medicaid: Medicaid generally reviews gifts from the past five years when you apply for nursing home care, and a transfer can cause a penalty period during which it won’t pay. There’s a federal exception for a child who lived in the home for at least two years immediately before the parent entered a facility and who provided care that kept the parent at home. 

• Insurance and property taxes: Confirm your homeowner’s and title insurance still cover the home, and ask whether your area reassesses property taxes after a transfer.

An elder law attorney can help you review the terms of your loan and avoid expensive mistakes.