Tips for Getting a Name Off a Mortgage
Options for Changing Borrowers
Applying for a mortgage jointly makes it easier to get approved. But things change, and one of the borrowers might leave the house or need to get free of the loan for other reasons. So, how easy it is to remove a name from a mortgage, and what are the options for doing so?
It’s possible to get somebody’s name off of a mortgage, but the process is typically challenging. That’s true for primary borrowers as well as co-signers who helped a borrower get approved. Until officially change the mortgage (or pay it off entirely), everybody is responsible for the loan, and that debt can reduce their ability to get other loans.
Lenders are not eager to take anybody’s name off of a home loan. When they approved the loan, they evaluated the credit scores and income of both borrowers together.
Especially when it comes to home loans, more than one income may be necessary to reach a satisfactory debt to income ratio. In other words, many people have a hard time qualifying for a mortgage on a family-sized house by themselves.
In most cases, all borrowers are 100% responsible for the debt—it’s not 50/50 on a joint loan. If one borrower is unable to pay for any reason (whether it’s financial hardship or one of the borrowers dies), the other borrower needs to keep up with payments or pay off the loan. If lenders simply remove a name, they increase their risk and they give somebody a free “out.” Lenders are reluctant to do that.
Unfortunately for co-borrowers, lenders see each applicant as an individual opportunity to collect on the loan.
You might think that it’s “our” loan (and in cases of divorce, for example, there is no more “us”), but your loan agreement is not structured that way. Even if a divorce agreement specifies that your ex is responsible for the debt, lenders can still collect from everybody who applied.
Ex-spouses may face legal consequences for failing to follow court orders, but you can’t change an existing loan agreement.
How to Remove a Name
There are several ways to take somebody's name off a loan.
Expect the process to take some time and involve significant paperwork, but ideally, you’ll be able to put the loan behind you.
Ask Your Lender
Start by asking your current lender about changing the loan. You won’t get it all done in one phone call, but you can find out if it’s possible to keep the existing loan with one less borrower. If so, any remaining borrowers (whose names remain on the loan) typically need to re-qualify for the loan on their own. Those borrowers need good credit and enough income to comfortably make the payments, and they may need to go through an application process similar to when you originally obtained the loan.
If your lender approves the request, they may provide a release of liability (often used in cases of divorce).
Refinance the Loan
If your current lender won’t help you, try refinancing the loan. To do so, you apply for a new loan and use that loan to pay off the old debt. The person responsible for the replacement loan should apply individually, and they need sufficient income and credit scores to qualify for the loan. Other lenders might be more willing to approve a new loan, and you might benefit from programs like FHA loans (which may have easier approval standards when it comes to the size of your down payment and credit scores).
If You’re Underwater
Refinancing is particularly difficult when your home is worth less than you owe—or if you have minimal equity in the home. Conventional lenders have strict requirements for loan-to-value ratios, and you won’t meet those criteria unless you write a big check at closing. Fortunately, several government refinancing programs exist that might help you get a new loan. Before you do all of the paperwork, verify that you can get the loan refinanced under the borrower you want.
It may be possible to transfer a mortgage to a different borrower. Assumable mortgages offer this feature, but most loans are not assumable. If you’ve borrowed through the FHA or VA, you may have this ability. Still, it’s worth asking, no matter where you borrowed.
Sell the Property
If you don’t have any luck with the approaches above, you might need to sell the property and use the sales proceeds to pay off the loan. That can obviously cause a disruption for you or your family, and it might be difficult to sell if you’re underwater, so reveiw your options carefully and get help from local real estate professionals before you make a decision.
All of the options above involve fees, so evaluate several alternatives before choosing, and decide who pays the fees. Even if you’re selling a property and receiving money, real estate agent fees and other costs are likely to reduce your take. Among the options listed, a release of liability or a loan assumption are probably the most affordable because they avoid the closing costs associated with refinancing.
Same Story for Co-Signers
All of the above is true for co-signers on a mortgage. As a co-signer, you’re 100% responsible for the loan, and lenders don’t want to let you off the hook. Talk to the primary borrower about refinancing, and remember that their future is tied to yours.
With some loans (student loans, in particular), it is easier to get a co-signer off the loan after a period of on-time payments. However, home loans typically do not offer the same features.
A quitclaim deed typically does not remove a borrower’s name from a mortgage. With a quit claim deed, an owner can transfer all ownership rights to somebody else, but any loan agreements remain unchanged. As a result, a quit claim deed can leave a borrower worse off—they owe money on a property, but they no longer have any ownership interest in it.
Giving up an ownership interest does not mean you give up the responsibility to pay.
The information on this page is basic in nature and cannot be considered legal or financial advice. Speak with an attorney who is licensed in your state and familiar with your situation before making any financial decisions.