Removing A Name From Your Mortgage: What You Need To Know

Removing someone's name from a mortgage is a complex process that often requires refinancing the loan in the name of the person who will retain ownership of the property. This involves obtaining a new mortgage to pay off the existing one, releasing the other party from their financial obligation. While refinancing is the most common method, it is not the only way, and there are alternatives for those who are unable or unwilling to refinance.

How do I remove someone's name from my mortgage?

Removing a name without refinancing

Removing a name from a mortgage without refinancing is possible but can be challenging. The process will depend on the lender and the circumstances. Here are some options to explore:

Loan Assumption or Novation

Loan assumption or novation allows a new borrower to take over the mortgage without changing the original terms. This process removes the former co-owner's name from the mortgage but requires negotiation with the lender, as not all lenders allow this. FHA and VA loans, for example, typically permit assumptions. If your lender agrees to a loan assumption, you'll need to sign a new mortgage contract and deed with only your name on it, and the original co-borrower will need to sign documents to remove their name.

Full Repayment of Loan

If refinancing or loan assumption is not possible, the lender may require you to fully repay the loan to remove a name from the mortgage. This action will release all co-borrowers or co-signers from the mortgage agreement. However, this option may not be feasible if you don't have immediate access to enough cash to cover the total loan balance.

Power of Attorney

If your spouse or co-borrower is unwilling to cooperate in removing their name from the mortgage, a power of attorney may be used. This legal document allows you to make decisions related to the property and mortgage on their behalf. However, this option should be approached with caution and legal guidance to ensure it is appropriate for your specific situation.

Bankruptcy

If your co-borrower is facing financial difficulties and considering bankruptcy, their bankruptcy discharge may include the mortgage debt. In this case, they would no longer be liable for the loan, effectively transferring sole ownership and responsibility to you. This option should be carefully considered with the help of a bankruptcy attorney.

Quitclaim Deed

If you've been able to remove a co-borrower's name from the mortgage through one of the above methods, you may still need to remove their name from the house title to give up their ownership rights. This can be done by filing a quitclaim deed, which transfers ownership of the property solely to you. It's important to consult a lawyer during this process to ensure all necessary steps are taken.

While removing a name from a mortgage without refinancing can be complex, it's not insurmountable. It's essential to communicate with your lender and understand the specific requirements and options available to you.

Using a divorce decree

A divorce decree is a legal document that outlines the terms of a divorce, including the division of assets and debts. It can be used to specify who will be responsible for the mortgage and outline any agreements related to the property. This provides clarity and legal protection for both parties.

If you are the one retaining the property, you must independently qualify for the new mortgage by meeting the lender's requirements for debt-to-income ratio (DTI), credit scores, income, employment stability, and equity. The lender will also want to ensure that you will be able to make the payments and live up to your end of the deal. This process can take a few weeks and may require a loan application, proof of income, bank statements, a credit report, property title and deed, and the divorce decree.

If your ex-spouse is retaining the property, they will need to apply for a new mortgage and, if approved, will assume full responsibility for the loan. This is called a loan assumption and can release one person from the loan so that the other becomes the sole homeowner. However, many conventional mortgages are not assumable because they include a due-on-sale clause, which allows the lender to demand repayment in full if the home is sold. In this case, you may need to submit a divorce decree to the lender.

In some cases, a divorce decree may stipulate that one spouse is responsible for mortgage payments, even if both names remain on the loan. However, this arrangement does not release you from liability with the lender. To be released from liability, you will need to obtain a release of liability from the lender, which may require a divorce decree and a quitclaim deed.

Qualifying for a new loan

If you are considering refinancing to remove a name from your mortgage, consult a lender to navigate the process and find the best solution for your unique situation. Lenders will evaluate your ability to keep up with future mortgage payments alone before releasing your co-borrower from liability.

• Debt-to-Income Ratio (DTI): Lenders will assess your DTI to determine your ability to manage your monthly payments. A high DTI may hinder your eligibility for a new loan.
• Credit Score: Your credit history and score play a crucial role in securing a new loan. Lenders will evaluate your creditworthiness, and a low credit score may impact your eligibility or result in higher interest rates.
• Income and Employment Stability: Lenders will consider your income and employment stability to ensure you can consistently make mortgage payments. A higher income and stable employment improve your chances of qualifying for the loan.
• Equity: The amount of equity you have in the property can impact your eligibility for a new loan. Lenders may require a certain level of equity as collateral for the loan.
• Interest Rates: Interest rates can fluctuate, and higher interest rates can increase your monthly payments, making it more challenging to qualify for a new loan.
• Down Payment: A larger down payment can improve your chances of securing a new loan. It demonstrates your financial commitment and reduces the loan amount required.
• Loan Term: Opting for a longer loan term can lower your monthly payments, making it easier to qualify for the loan. However, a shorter loan term may be more feasible if you can afford higher monthly payments.
• Creditworthiness of Co-Borrower: If you are applying for a joint loan with a new co-borrower, their creditworthiness will also be assessed. Lenders will consider their income, debt, and credit history.

Bankruptcy

If you are looking to remove someone's name from a mortgage, the most common method is to refinance the loan in the name of the person who will retain ownership of the property. This involves obtaining a new mortgage to pay off the existing one, thereby releasing the other party from their obligation. However, refinancing can come with additional closing costs and the potential challenge of qualifying for a new loan, so it needs careful consideration.

If you are unable to refinance, the lender might insist that you fully pay off the loan to take someone's name off the mortgage. This will finalise the loan, freeing you and any other co-borrowers or co-signers from the mortgage agreement. If this is not possible, you may be forced to sell the property to settle the remaining amount.

Another option is to ask your mortgage lender about loan assumption and loan modification. Not all lenders allow this, but it can be a simple solution to remove a former co-owner's name from the mortgage without the need for refinancing.

If you are considering bankruptcy, it is important to note that while it can help you recover from debt, you will still have to make your mortgage payments. Bankruptcy offers a fresh start, free of overwhelming debt, but it can have a major impact on your finances, assets, and credit. It should always be a last resort.

If you are looking to remove someone's name from a mortgage during bankruptcy, it is important to understand the different types of bankruptcy and how they affect mortgages. Chapter 7 bankruptcy, for example, allows you to discharge your debts through liquidation. Your property will be sold, and the money will be distributed to your creditors. Unless you can claim an exemption, you must give up your home to have the remaining debt discharged. Chapter 7 bankruptcy will wipe out your mortgage obligation, but it won't eliminate the mortgage lien, and you will still have to give up your home if you are unwilling to pay the mortgage.

On the other hand, Chapter 13 bankruptcy can help homeowners catch up on past-due mortgage payments and avoid foreclosure by reorganizing their debts. It divides overdue payments into manageable installments based on income over a three-to-five-year period. At the end of the plan, any remaining balance can be discharged. Lien stripping is a benefit of Chapter 13 bankruptcy, allowing the removal of junior liens such as a second or third mortgage lien.

Using a quitclaim deed

A quitclaim deed is a legal document that transfers a property's title between two parties. It is a quick, affordable solution to settling divorce obligations. It can be used to remove a spouse or co-owner from the deed and mortgage, allowing the remaining owner to obtain better interest rates and terms when refinancing.

To use a quitclaim deed to remove someone's name from a mortgage, the person whose name is being removed (the grantor) must voluntarily give up their ownership rights to the other person (the grantee). This means that the grantor will no longer have any financial responsibility for the mortgage and will surrender all rights to the property.

The process of filing a quitclaim deed typically takes about four to eight weeks. The specific information required for a quitclaim deed to be considered legal may vary by state, but generally includes the identification of the grantor and grantee, the property details, the date, relevant signatures, and the terms of the transaction.

It is important to note that a quitclaim deed does not modify the loan or remove a person's name from the mortgage. It only transfers ownership of the property. Therefore, it is often used in conjunction with a divorce decree, which outlines how property will be divided in a divorce.

Consulting a lawyer during this process is recommended to ensure that all necessary steps are taken and that the quitclaim deed is properly executed and recorded.

Frequently asked questions