Life changes, and so do the people you share it with. The person you signed a mortgage with 5, 10, or even 20 years ago might not be in the picture anymore, or they might no longer be in a position where they can afford to be paying off a mortgage. It happens, and when it does, you’re faced with the tough process of how to remove their name from the mortgage and loan documents.
Many people remove a name from a mortgage by refinancing. Essentially, that means you’re paying off the original mortgage with a new loan that doesn’t have the other person’s name on it. A loan refinance can be a good way to go if you can get great terms on a new one, but it isn’t always in your best interest.
First of all, it’s expensive to refinance a home. Because it’s a brand new loan, you could be paying thousands in closing costs. Those costs are usually added onto the loan balance, increasing your amount due and effectively reducing your equity.
Also, getting a new loan might cause your credit score to drop, making it hard for you to get credit from other lenders. Consider pursuing other strategies besides refinancing — if nothing else, it’s always good to have options.
Option #1: Assume the Mortgage
If you’re looking for how to remove a name from a mortgage without refinancing, you can consider an assumable mortgage. This lets one person take over the mortgage from another. This strategy is often used when a buyer takes on the remainder of a seller’s mortgage without applying for a new loan, but it can also be used to shift a multi-person mortgage into the hands of a single individual.
Federal Housing Administration (FHA) loans and mortgages from the Department of Veterans Affairs (VA) are all assumable. Conventional mortgages aren’t always, so you’ll need to check in with your lender and find out if you can assume the remaining balance.
How to Do It
Even when you’re already on the mortgage with someone else, a lender will want to know that you can make the payments on your own before you can remove a name from a mortgage. Expect to have to provide proof of your income, assets, and debts. You’ll probably need many of the same documents that you provided for your initial application, such as:
- W-2s and/or income tax returns from the past two years
- Bank statements
- Investment and retirement account statements
- Permission for a credit check
Because this is essentially a new loan approval, expect the process to have fees attached.
Option #2: Secure a Release of Liability to Remove a Name From a Mortgage
If your mortgage isn’t assumable, you may be able to get your lender to agree to a release of liability. This is exactly what it sounds like — your lender is agreeing to release your co-signer from the obligation of paying back the loan and remove the name from the mortgage. They’ll take that person off of the document and you will have to prove that you can make the payments on your own.
How to Do It
Release of liability isn’t a new loan, so you won’t have to agree to new terms. You will have to prove to the lender that you can make the existing payments comfortably after you remove the name from the mortgage, which means providing many of the same documents that you would need if you were assuming the mortgage.
Assuming the lender approves the release, you’ll need to sign a document stating that you agree to take on full responsibility for the loan.
Option #3: Pay off the Mortgage
One obvious yet financially challenging way to remove a name from a mortgage is to pay it off entirely. This can be a great option if someone is in good financial shape but doesn’t want to be included in a mortgage anymore.
How to Do It
Talk to the other person on the account and figure out a way to pay off the mortgage. If you’re divorcing, involve your divorce lawyers. If you choose to remove your name from the mortgage and the loan, this might be in your and your spouse’s best interest.
Once you’ve paid the balance on the mortgage, the lender is typically obligated to file a Satisfaction of Mortgage document. If your lender is no longer in business, you can contact the Federal Deposit Insurance Corporation for help in securing the appropriate documentation.
Option #4: Sell the Property
Sometimes the only way to remove a name on a mortgage document is to sell the property.
Usually, this means getting a real estate agent and finding a new place to live. That may translate to downsizing, especially if you know you wouldn’t qualify for a similarly-sized property on your own. You may decide to rent instead of own, depending on your circumstances.
Many people feel like they have to move at this point, but that’s not necessarily the case. For example, if you’re divorcing and can’t afford to keep the house on your own, you may choose to sell it to a loved one like a child, sibling, or friend.
Even if you don’t have anyone you can turn to for such a big ask, you can still find a way to stay in the house you love.
Remove a Name From a Mortgage: The Sale-Leaseback Alternative
It’s difficult to find yourself forced into selling your property, especially if you don’t want to move. Don’t assume that just because you don’t have family or friends who are willing to buy the house and rent it to you, or let you buy it back, that you’re out of options.
A sale-leaseback program can be that third-party buyer for you. A sale-leaseback program lets struggling homeowners sign their properties over and become renters in the home. They keep paying rent until they’re ready to buy back their property or move.
Don’t linger in uncertainty any longer than you have to. Talk to a financial advisor about your options.