So, you’re changing from a co-owner to the sole owner of your house. And now it’s time for your spouse or co–borrower to come off your joint mortgage. Probably from your house deed, too.
If the title is already in your name only, that second step isn’t necessary. But assuming the usual situation — your names are both on the loan and on the title — you’re both responsible for the mortgage unless and until the extra person’s name comes off the mortgage and thedeed.
With that in mind, there are a few ways to take someone else’s (or your own) name off a mortgage. The best method will always depend on the co-owner’s circumstances. But as basic information, here are three of the most common ways you could make the transition from co-borrower to the sole mortgage payer and homeowner.
1. Tried and True: Refinancing
Refinancing to put the mortgage in your own name is a common way to go from co-owner to sole owner. This means applying for a new mortgage, with a new loan term. You’ll be asked for proof of income and all the usual financial documents. The lender will decide whether to approve your new, solo mortgage based on:
- A showing of sufficient credit history.
- W-2 income over the past two years. (Lenders do accept proof of contract income, but have a much easier time with W-2 income, as they need to discern a stable, predictable source of money the applicant can use to cover future loan payments.)
- A low enough monthly ratio of monthly bills versus income. According to the U.S. Consumer Financial Protection Bureau, a 43% debt-to-income ratio should be your limit.
- Any documentation showing you will receive alimony or other regular payments from your current co-owner.
Pro tip: A divorce court might direct one partner to receive a payment from the home equity in return for relinquishing ownership. Speak with your mortgage specialist if cash-out refinancing could meet your goals.
Once you turn in your documentation, the underwriter will take time to assess it and ask for any other necessary or helpful documents. This is the process you went through to receive your current loan — but this time, you’ll need to be approved based on your financial profile alone. You might need to accept private mortgage insurance.
☛ Learn more about the assets you’ll need for a mortgage, and whether private mortgage will be necessary for you.
You’ll pay closing costs again, too. The costs could be up to about 5%.
On the bright side, when interest rates are low, refinancing to remove a co-borrower can enable you to pare down your monthly payments, and the savings add up over time.
Pro tip: If you have a government-backed loan, you may be able to use the Streamline Refinance option to remove a co–borrower. It doesn’t require a new home appraisal, so it can be cheaper and faster than a traditional refinance. As a general rule, if you hope to streamline refinancing and become the sole borrower, the lender wants to see that you’ve made at least the past six months’ mortgage payments yourself.
2. By Permission of the Lender: Assuming the Loan
Will your lender let one co-owner come off the loan, while the other person assumes the entire responsibility of repayment? This one could be a long shot. But if the lender agrees, you can keep the current mortgage. Some mortgages, such as FHA loans, are automatically assumable under the same terms and rates received by the original borrower(s). This may enable a buyer to get approved for a loan with a co-owner, then assume the loan later as sole borrower.
If you can document your capacity to take on the whole mortgage alone, the lender might let you do it, even if it’s not designated as an assumable loan.
Some divorced owners are able to modify their mortgages, creating lighter monthly repayment options for the sole remaining borrower. Your mortgage servicer can tell you whether keeping the loan or a modified version is feasible, and what fees to expect. If it is feasible, the representative will explain your options for a loan modification that complies with applicable laws.
3. When Releasing the Co-Borrower Is Financially Impossible: Selling the House
Some separating co-owners just sell the home. Maybe it’s too big for one person to maintain. Maybe the co-owners haven’t built up enough home equity to cover the costs of refinancing. Perhaps the co-borrower who would stay in the house simply cannot get the lender’s go-ahead.
If the mortgage debt amounts to more than the current property value, the owners might not be in a position to sell. They might need to embark on a short sale. This is not an easy process, and the lender might or might not agree to it.
☛ Learn about foreclosure alternatives that might be available if a sole homeowner can’t continue making payments on the current mortgage.
In a short sale, the mortgage lender takes less than the full outstanding debt from a sale to a new buyer. Lenders agree to short sales to avert costly foreclosure actions. Note that lenders consider short-sale listings as pre-foreclosure measures. If they don’t like the buyer’s terms, lenders may decide to foreclose after all.
Key Step: Taking a Co-Borrower’s Name Off the Title
A co-borrower on the mortgage is also a co-owner. Refinancing does not end the extra co-borrower’s ownership. Yet the title company will assist in removing the co-borrower’s name from the title. To make a legally effective handover of ownership rights, the co-owner who is leaving can sign and record a notarized quitclaim. This action removes the former partner’s name from the house title.
☛ Thinking of using a quitclaim deed? In certain situations, it’s a good way to transfer home ownership. Here are 5 top reasons to use a quitclaim deed.
If you are a co-borrower helping a primary buyer buy a home, you may envision yourself cutting ties to both the loan and the title in the future. If this is your plan, it’s wise to have a separate, notarized agreement that sets forth a promise from the primary buyer (the one who will keep the home) to refinance within a certain time frame. Perhaps the idea is that the primary buyer will be capable of getting an approval for a new loan in two or three years. Specify an agreed-upon date, and be sure the primary borrower starts applying well in advance of your written deadline. Your agreement should direct the primary borrower to release you from the loan and title, and any insurance responsibilities.
Note: Depending on your relationship to the co-owner, the home’s state might collect transfer tax on a title transfer.
Are You the Borrower on the Other Side of the Split? Don’t Just Quitclaim. Get Off the Mortgage, Too.
Signing ownership over to your separating partner, or anyone else? Then disengage from the mortgage using one of the three ways we have outlined; if you’re in divorce proceedings, follow your attorney’s guidance.
What if you don’t come off the mortgage? If your former co-borrower faithfully repays the mortgage servicer, great. Your credit profile will stay intact. But if that person one day stops paying, your good credit will be at stake. Eventually, the lender will ask you to pay off the balance. So, if you agree to transfer title to your co-owner, or are directed to do so by a judge, get off the mortgage.
Language in the court order or in your mortgage contract may direct the lender to release you upon the title transfer. More commonly, your co-owner can obtain a new contract that lets you off the hook through refinancing, modifying, or assuming the mortgage. When you come off the mortgage, get a release of liability. This prevents a lender from pursuing you in the event of a future default.
Still on the mortgage and not sure what to do next? Consult with a lawyer about the optimal contractual arrangement you can make to ensure the mortgage can be paid and your interests are protected. You might be better off selling the house in the first place (see section #3 above). If it’s too late for that, you might be able to seek a court order to be released from the debt.
Of course, this article cannot provide, and should not be considered, legal or financial advice. State laws and personal situations differ from person to person. Here at Deeds.com, we wish you the very best as you make changes in your own situation, and begin the next chapter of your life.
Supporting References
Mathis Title Company: How to Remove Someone From a Mortgage (Apr. 26, 2021).
Pete Gerardo for The Mortgage Reports: How to Get a Name Off a Mortgage, With or Without Refinancing (Feb. 25, 2022).
Deeds.com: How Getting a Mortgage With a Co-Borrower Affects the Deed (Aug. 5, 2019).
Deeds.com: Giving Up Ownership of Real Estate When You’re Still on the Mortgage (Oct. 29, 2018).
And as linked.
Photo credits: George Milton and cottonbro, via Pexels.