Removing a Name From a Mortgage: Release of Liability
You may be wondering how to get out of a mortgage if you just went through a divorce with your spouse or you moved out of a home that you owned with a partner. There are a few ways to remove a cosigner from a mortgage but the easiest and most common procedure involves refinancing the home.
If refinancing your home doesn’t seem like an option for you at this time, you may want to look into a government refinancing program. The government provides more affordable options with different terms than you may find through private lenders. These programs may make it more realistic for you to refinance and remove a name from the mortgage.
If you’re going through a divorce, it’s important to note that refinancing and removing a name from the mortgage must be completed separately from your divorce. Court proceedings will not involve taking you or your spouse’s name off the mortgage, so you’ll need to work together to complete this step outside of the courtroom.
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Refinancing to Remove a Cosigner
The most common way to remove a spouse from the mortgage after a divorce is to refinance the home. The process to refinance the home is the same as when you first applied for your mortgage when buying your home. You’ll need to:
- Speak with a mortgage broker or loan officer.
- Complete the loan application process.
- Review the loan options you qualify for.
- Complete the loan paperwork in your name only.
- Close on the loan.
- Make mortgage payments, as required.
You may find it easiest to speak with your current lender about refinancing the home in your name. You can also look into the qualifications for an FHA loan or the requirements for refinancing the house through a government-sponsored program.
While it sounds simple to just remove your spouse’s name from the mortgage, the lender must complete the qualifying process and offer you new loan terms. When you and your spouse qualified for the original loan, you were more than likely providing two credit histories and two incomes. Now, only your income and credit history can be considered by the lender to determine the loan terms, which is why the lender usually requires you to refinance.
If you owe more money for your home than it’s worth, you may find it hard to refinance your home and remove your spouse’s name from the mortgage. Conventional lenders have strict loan-to-value ratios and you may not qualify for a loan from one of these lenders. If you attempt to refinance, you may be required to provide a large down payment for the new loan.
Other Options for Release of Liability
Refinancing is usually the easiest and most efficient way to remove a cosigner from the mortgage. However, if you’re unable to refinance or you aren’t being offered satisfactory loan terms with any lenders, there are other ways you can take a name off the mortgage without refinancing.
While a quitclaim deed does not typically remove a cosigner’s name from the mortgage, it does transfer all ownership rights to one party named on the mortgage. A quitclaim deed allows all loan terms and financial obligations tied to the home to remain the same. However, giving up ownership interest in a home through a quitclaim deed doesn’t eliminate that person’s financial responsibilities with the property.
If the current owner defaults on the mortgage, both parties may be negatively affected by the consequences. In this case, a quitclaim deed can leave the previous owner who moved out in a worse financial situation. While this previous owner has no ownership rights to the property, he or she is still financially responsible for the home.
Sell the House
If you and your ex-spouse sell the home, you’ll be able to resolve the issue of removing a name from a mortgage completely, without refinancing or filing a quitclaim deed. If selling the house sounds appealing to both owners, they can generally split the profit made from the sale after the loan has been paid off.
In most cases, selling a home can only work out well if you and your ex-spouse are experiencing an amicable divorce. This solution also usually only works if the home is worth more in the market than what you owe on the mortgage. If you attempt to sell your home but it’s not worth as much as you have left on the loan, you may need to sell it through a short sale. This can be a longer sales process and can negatively affect you and your ex-spouse’s credit for years to come.
A loan assumption can be the easiest way to take the name off a mortgage without refinancing. With a loan assumption, your lender allows you to keep the same mortgage and loan terms while taking your ex-spouse or ex-cosigner off the mortgage completely.
However, your loan must be “assumable” and your lender must agree to a loan assumption. Most lenders aren’t quick to agree to these terms since they’re worried about your ability to continue making mortgage payments without the financial support of your ex-spouse or previous cosigner.
If your lender does agree to a loan assumption, you may be required to provide financial statements and proof that you can make the mortgage payments alone. In most cases, a loan assumption isn’t free and you may be responsible for administrative fees, which can cost between $300 to $500. You may also be responsible for an additional loan assumption fee, which is usually 1% of the loan amount.
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This post was updated December 5, 2019. It was originally published December 5, 2019.