It’s possible to remove one co-borrower from a mortgage, but in most cases, it will require refinancing the loan with only the other borrower’s name.
When you buy a house with a spouse or partner, it’s common to put both borrowers’ names on the loan. Some people even buy homes with friends, again listing both parties on the mortgage. Not only does this ensure the responsibility of repaying the loan is shared, but it can often help you get better loan terms or get approved for a higher loan amount.
Unfortunately, there are also situations where two people buy a home together, but then one of them needs to be removed from the mortgage loan for one reason or another. The process of removing one person from a joint mortgage loan can be complicated, but it is possible, and there are a few different options to consider.
Can you remove someone from a mortgage?
While you can remove someone from a mortgage, it’s a bit more complex than it sounds. You can’t simply call your lender and ask them to remove one of the borrowers from the loan.
In my work, this happens in divorce when one spouse wants to keep the marital home,” said Jeffrey Landers, the CEO of Next Act Properties. “The departing spouse will not want to remain obligated on a home they no longer own.”
Divorce and breakups aren’t the only reasons you might want to remove a co-mortgage borrower from the mortgage documents. Other examples include if one borrower is going through a financial hardship or if one partner wants to buy another home without having the existing mortgage tied to their credit report.
How to remove someone from a mortgage
In most cases, you’ll have to refinance your loan to remove a borrower. However, there are a few other options to consider.
Contact your mortgage lender
If you need to remove a co-borrower from your mortgage loan, your first step should be to call your mortgage lender. In most cases, the financial institution won’t allow you to keep the same loan while removing a name.
That said, it’s worth asking whether loan modification is an option, and depending on the financial situation of the two borrowers, a bank or credit union may approve it.
Assume the mortgage
Another course of action to remove a borrower from a loan is for the other borrower to assume the mortgage loan. To use this option, you must already have an assumable mortgage, which is one that allows someone to assume the loan from the original borrower.
Unfortunately, most conventional loans don’t allow for loan assumption, meaning this isn’t likely to be an option. But if you’re one of many borrowers who have FHA loans or VA loans, then you may be in luck.
“Most government loans are assumable – VA, FHA, etc.,” Landers said. “But even in those cases, the person assuming the loan will need to qualify on their own, unless they bring in a non-occupying co-borrower, for example.”
Refinance the loan
The most common way to remove a borrower from a joint mortgage is to refinance the loan in the name of the borrower who wants to remain on the loan.
When you refinance, you get an entirely new mortgage loan like you did when you initially bought the house. The borrower who wants their name on the mortgage will have to qualify for the loan themselves, including having a credit history and debt-to-income ratio (DTI) that meets the lender’s requirements.
When you get a refinance loan, you’ll usually take out a loan of the same amount as your current loan balance. However, you’ll get a new interest rate and monthly payment.
What to do if you can’t remove a borrower from the mortgage loan
Unfortunately, there could be some situations where you won’t be able to remove a borrower’s name from a mortgage.
- Underwater. One example of such a situation is if you’re underwater on the home, meaning your mortgage debt is greater than what the home is actually worth. Because lenders won’t generally underwrite a loan for more than the home’s value, mortgage refinancing isn’t likely to be an option in this case.
- Not eligible. Another situation where refinancing probably won’t work is if the borrower who is planning to keep the home doesn’t meet the credit or sufficient income requirements to get a loan. In that case, it wouldn’t be possible for that borrower to refinance the loan without the co-borrower.
If you aren’t eligible for a refinance loan to remove a borrower’s name, you may need to sell the home and use the proceeds of the sale to repay the mortgage loan.
Pros and cons of removing someone from a mortgage
There are both pros and cons to removing someone from the mortgage. But the obvious advantage is that the borrower that no longer wants to be on the mortgage can remove their name.
“In a divorce situation, both spouses want to untangle themselves financially from each other,” Landers said. “So the spouse keeping the home will now solely own the home and will be fully obligated on the mortgage and can do whatever they want with the home without the former spouse’s involvement.”
There are also advantages for the borrower whose name will no longer be on the mortgage loan. They’ll no longer be financially responsible for repaying the loan. They will also no longer have the mortgage as an open account on their credit report, which could improve their credit scores and/or DTI.
Of course, there’s also a disadvantage to removing someone’s name from a mortgage that previously had two borrowers.
Outside of the fact that the person keeping the home will need to qualify on their own, they will be solely responsible for making all mortgage payments,” Landers said. “So even if they can qualify, they may not want such a large monthly obligation that could put them in a precarious situation.”
Many couples buy a home with both of their incomes in mind. But when you become solely responsible for the loan, the mortgage payments may no longer seem quite so manageable.
What is the cost of removing someone from a mortgage?
Anytime you take out a mortgage or refinance an existing one, you’ll have to pay closing costs on the loan. Generally speaking, closing costs range from 2% to 6% of the borrowed amount. So if you’re refinancing a loan with a balance of $200,000, you could pay between $4,000 and $12,000 in closing costs.
You may have the option of wrapping your closing costs into the loan amount as long as you still meet the lender’s DTI and loan-to-value (LTV) requirements. However, that will increase your monthly mortgage payments.
How to remove a co-owner from the title
If you’re removing one borrower from a joint mortgage loan, you’ll also want to make sure you remove their name from the title of the home. After all, you probably wouldn’t want them to have partial ownership of a home they are no longer financially responsible for.
To remove someone’s name from a house title, you’ll have to file a quitclaim deed. This document transfers ownership of a property from one party to another. In this case, the quitclaim deed would change the home’s ownership to remove the name of the person who has been removed from the mortgage loan.
Can one person take their name off a joint mortgage?
Yes, it is possible to remove one borrower’s name from a mortgage. In most cases, this will be done by refinancing the loan.
Can I remove someone’s name from a mortgage without refinancing?
It may be possible to remove someone’s name without refinancing, especially if you have an assumable mortgage. But most mortgages don’t allow for loan assumption, and refinancing is often the only option.
What happens if one person leaves a joint mortgage?
Once one person’s name has been removed from a mortgage, the other borrower is solely responsible for the monthly payments. Any failure to make the mortgage payments will impact the remaining borrower’s credit history but not the removed borrower’s credit.
- You may need to remove one borrower’s name from a mortgage in cases of divorce or breakup. However, this may also be necessary if one co-owner is facing a financial hardship that prevents them from helping with the mortgage payments.
- In most cases, you’ll have to refinance a loan to remove a borrower’s name. This requires one of the borrowers to qualify for a loan on their own and pay the closing costs for a new loan.
- You may also be able to remove a borrower from a mortgage by contacting your lender about loan modification or loan assumption, but these will only work in select cases.
- If you remove one borrower’s name from a mortgage, be sure to also use a quitclaim deed to remove their name from the home title.
View Article Sources
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