When you first got your mortgage, you might have applied with a spouse or other co-borrower to get better mortgage terms, split the financial responsibilities or simply because you wanted to live together.
But naturally, life happens, and things change. Maybe you’re getting a divorce, or you’ve decided you want to live on your own. Now you’re probably wondering how to get a name off a mortgage.
While it is certainly possible to remove a name from a mortgage, it isn’t always easy. In this article, our team at Southern Trust will discuss the most common options and alternatives for removing a name from your home loan and the necessary steps you need to take to do so.
Where Do I Start?
Contact Your Lender About Changing Your Loan.
If you and your co-borrower are ready to part ways but one of you plans on staying in the home, you’re going to have to figure out how to get your name (or your co-borrowers name) off the mortgage.
Once you and your co-borrower know who will be removed from the home loan, your lender can help you decide which removal option is best. They approved you once and they likely have the intimate knowledge of your finances necessary to decide if they want to do it again. However, you’re asking them to entrust the payment of your mortgage to one person instead of two, increasing their risk.
Quite a few borrowers don’t realize that both parties on a mortgage are responsible for the entire debt. For example, on a $500,000 loan, it’s not like both people are responsible for $250,000. You both are on the hook for the entire $500,000. If one of you can’t pay, the other person is still responsible for paying off the loan in its entirety. Therefore, if your lender simply removes one of the names off the current mortgage, one of you would be getting off scot-free so to speak. As you may have guessed, lenders are not often keen on doing this.
Refinancing To Remove a Name from A Mortgage
There are a few ways to remove a name from a mortgage, but refinancing is by far the most popular.
If you wish to have your name removed from the mortgage, consider speaking with your co-signer about the possibility of them refinancing in their name alone. Keep in mind that the equation has changed in terms of approval, as the lender is looking only at the financial variables for one person instead of two.
Do they have a high enough credit score to make sure they get a reasonable interest rate as the sole name on the loan? Is their income (not household, but their individual income) high enough to convince the lender that they can make the mortgage payments on their own? How does their individual debt-to-income (DTI) ratio look?
Once you determine that your co-borrower is willing and eligible to refinance on their own, they can explore the different kinds of refinancing options available.
- Streamline refinance: If the loan is a Department of Veterans Affairs (VA) loan or Federal Housing Administration (FHA) loan, you may be able to use the VA Interest Rate Reduction Refinance Loan (IRRRL) or the FHA Streamline Refinance to remove a name and close faster than you would with a traditional refinance.
- Cash-out refinance: A cash-out refinance lets you refinance your home and gives you a lump sum of money. In this scenario, the remaining borrower could use the lump sum to buy out the co-borrower and get their name off the mortgage. To qualify for a cash-out refinance, you must have 20% equity in the home.
How Can I Remove My Name Without My Co-Signer Refinancing?
It is possible to remove a name from a mortgage through either loan assumption or loan modification. Keep in mind that not all mortgage lenders offer these options. Speak with your lender to see if these are services they provide.
Loan Assumption
Loan assumption may seem like the simplest way to remove a name from a mortgage, but it’s not a widely available option and there are closing costs involved.
With a loan assumption, the remaining borrower takes over the balance of the loan, and the original terms of the mortgage (like the interest rate) stay the same. Lenders may be less likely to agree to a loan assumption because one borrower would be responsible for a loan the lender originally approved for two borrowers.
Assuming you’re the co-borrower who wants their name off the mortgage, it’s in your best interest to also get a release of liability from the lender. This way your finances and credit will be protected in case the remaining co-borrower fails to make the mortgage payments.
Loan Modification
Loan modifications change specific terms of a loan, like its interest rate or length of repayment, without having to refinance. When you refinance, you get new loan terms because you’re also getting a new loan. Loan modifications are mostly used in cases of financial hardship, but there are other instances when you may be able to take advantage of them.
Explain your situation to your lender to see if you can use a loan modification to remove a name from your mortgage.
Other Options to Explore
If you’ve exhausted the above options to get your name or your co-borrowers name off the mortgage and you keep coming up empty, it may be that neither of you can afford a mortgage on your own. At this point, selling the house or coming up with an alternative agreement may be the best available pathway to remove your name from the loan.
If the balance of the mortgage is greater than the home’s appraised value, you’ll have to opt for a short sale, which means the home’s sale price won’t cover the mortgage balance. Because your lender won’t get back all the money they originally financed, so they will have to greenlight your decision to go this route before you can list the home.
Another option might be to stay together on paper but go your separate ways in real life. This decision comes with obvious risks – and is not normally recommended – but both of you could theoretically continue to make mortgage payments together while only one of you lives in the home.
Quitclaim Deeds Explained
No matter how a name is removed from a mortgage, the name must also be removed from the property deed. And you do that by filing what is known as a quitclaim deed. A quitclaim deed is a document that publicly removes a person’s claim to a property. The quitclaim deed transfers ownership and financial responsibility to the party who remains in the home.
To file one, ask your real estate attorney for a copy of the form or find one online through your local county clerk’s office. Both you and your soon-to-be ex-co-borrower fill out the form, sign it in front of a notary, and file it with the county clerk.
Final Notes
The only certainty in life is change, and it’s better to be prepared for it when it comes. If you’re ready to take steps to remove your name or your co-borrowers name from your mortgage, connect with one of our skilled Loan Officers today!