When it comes to securing a loan for a home, a joint mortgage is often the right decision. A joint mortgage is when two people are listed as borrowers for a loan. When it comes to applying for a large amount, a joint mortgage makes the process easier; the combined incomes and additional assets create a higher chance for approval and will allow you to pay off your loan much faster as well.
While there are many benefits to having a joint mortgage, life does tend to get in the way. There are two main reasons why a joint mortgage would have to be dissolved: death or divorce/separation.
Some lenders have a provision if one of the borrowers dies, in such cases, the mortgage is transferred completely to the survivor. Most of the time this is not the case and is especially not when it comes to divorce or separation.
While the process of getting a name off of a mortgage is tricky, there are many options to do so. All these options involve a lot of legalese and it is recommended to take the help of a mortgage broker to help with the process, there are many hoops to jump through and having an expert guide through the process will make a lot of difference.
At Mares Mortgage, we make financing your home easy for you. Here’s our guide about how to get out of a mortgage.
Related: Questions to Ask a Mortgage Lender
1. Pay Off The Mortgage
A rather straightforward approach if one has the means to do so is to pay off the mortgage. This process requires the consent of the co-borrower and their financial ability to pay off the loan. If the co-borrower agrees to do so, then the next step is to hire an attorney and ensure that all legal proceedings are followed while paying off the mortgage. After the mortgage has been paid off, a reconveyance’ will be issued by the loan servicer confirming the loan has been paid and the lien has been removed from title.
This document is proof that there is no mortgage under any of the borrowers’ names.
2. Add Another Co-Signer
When it comes to removing the name from a joint mortgage, one of the options is to find a replacement/co-borrower. This will be completed through a refinance and both co-borrower and you will need to qualify again for the new loan to pay off the existing loan.
This is can be completed by refinancing and the new co-borrower can be considered a “non-occupant” co-signer meaning they are not going to occupy/live in the property. Many times we see parents act as “co-signers” for their children to assist them with qualifying.
3. Obtain A Release Of Liability
If one cannot find a different co-signer, another option is to ask the lender to sign a ‘release from liability’ document. If the remaining co-borrower is capable enough to make the monthly payments by themselves and can prove it, a lender will release the other borrower from the liability.
Proof of financial capability includes documents like pay stubs, tax returns, and bank statements along with a strong credit history.
Related: Reasons to Refinance Your Home
4. File For Bankruptcy
For those who are struggling to pay off the mortgage and want to remove their name, the last resort is to file for bankruptcy. Filing for bankruptcy gives people the eligibility of a bankruptcy discharge under Chapter 7 of the U.S. Bankruptcy Code.
The process involves including the mortgage under a bankruptcy filing form and if the proceedings go as planned, the liability of the mortgage will rest entirely on the co-borrower.
5. Sell The Property
Another extreme step of removing a name from a mortgage is to sell the property to someone else. This will remove both the borrowers from any liability as the debt will be paid off. It is important to make sure that one’s name isn’t listed on the mortgage or property records after the house has been sold. Selling the property can give the freedom to make individual financial decisions, like purchasing another home without the same co-borrower.
6. Refinance The Loan
Refinancing is the process of obtaining a new loan to pay off the first loan. Refinancing has to be done by the person who wishes to keep their name on the mortgage and they must submit proof of financial stability to the lender in order for the refinancing to be approved.
After the mortgage has been refinanced, the borrower who stayed on title and the loan will be responsible for paying the new loan.
With refinancing, documents like pay stubs, tax returns, and bank statements have to be submitted by the refinancing party and will need to have the ability to qualify for the mortgage on their own based on that loan program’s guidelines.
This is another time working with a mortgage broker can be useful because they are able to search for a product that may give you a better chance for qualifying on your own.
Find out why Mares Mortgage is the most convenient home loan option.
7. Assume The Mortgage
The assumption of a mortgage is that one person takes on the entire liability of the loan. This allows the removal of the second person from the mortgage liability while keeping the original interest rate, repayment period, etc as is.
Loans offered by the Federal Housing Administration and the Department of Veterans Affairs are generally assumable. For other lenders, it is best to ask whether or not the mortgage can be assumed.
For this option, the co-borrower needs to agree to take on the full liability of the mortgage and if approved by the lender, an assumption notice is sent which states that the name of the second borrower has been removed from the mortgage. It is best to have this reviewed by a mortgage broker.
8. Request A Loan Modification
A Loan Modification Agreement is generally signed as a negotiation when the borrower wants to reduce the monthly payment amount. Here, a lender can also remove a name from the mortgage agreement if the co-borrower shows that they can manage monthly payments at a reduced rate without the co-borrower.
Typically, loan modifications are only approved due to a temporary financial hardship. Proof of current financial situation that illustrates the temporary hardship which warrants for a lower rate must be presented to the lender. After approval, a new contract is sent which has new terms and conditions.
There are many reasons why someone might want their name removed from a mortgage agreement, and it differs on a case to case basis.
However, selecting the right option (from the ones listed above) plays a crucial role in the entire process and to do so, it is recommended to enlist the help of a professional mortgage broker that can guide you and simplify the process of getting out of a mortgage.
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