You bought a house with someone else, but now it’s time to part ways. Unlike other purchases, you can’t just buy the other person out and walk away from the liability. Your name remains on that mortgage until you have it legally removed.
More parties are involved than just you and the co-owner. You have to get the lender’s approval and secure the services of the title company to make it legal.
The Easiest Option
If your lender offers the option for a Release of Liability, this is the easiest option. This document releases the ex-spouse or other co-owner that wants out of the mortgage. The lender agrees to release this person of all liabilities pertaining to the mortgage. This option is usually subject to the lender’s approval of the following:
- The remaining owner has good credit
- The remaining owner has sufficient income to cover the mortgage payment
In other words, the lender will make sure that the remaining owner can continue to make the mortgage payments on time and isn’t a high risk of default.
Refinance the Loan
The next and most common option is to refinance the loan. You can apply for the appropriate mortgage, whether it’s FHA, VA, USDA, or conventional. This time around, you’ll apply for the mortgage as a sole applicant. The co-owner will not go on the mortgage or have anything to do with qualifying for it.
You will provide the lender with your proof of income (paystubs, W-2s, tax returns) and proof of assets. The lender will pull your credit and determine your debt ratio. Together with your credit score and supplemental information, the lender will decide if you can afford the loan on your own.
If the lender decides you can afford the loan, you close on the mortgage in your name. The ex-owner will sign a Quit Claim Deed to put the home solely in your name, and he/she is then removed from any liability. He/she also no longer has ownership in the property.
Sell the House
If the remaining owner can’t get approved for a mortgage on his or her own, the only option may be to sell the home. This releases both owners from liability as long as the loan is paid in full. This step can get a little tricky, though, as you’ll have to be in full agreement regarding how the profits are split.
If you are involved in a divorce, the court will usually decide how the proceeds get split up. If you owned a home with a friend or someone you weren’t married to, you will have to come to an agreement on how to split the home’s proceeds. Sometimes it helps to get a lawyer involved to make sure everything happens as it should and is legally binding.
There are a couple of other options you can use to get your name off a property’s title. Caution should be used, though, as these methods don’t release your liability from the mortgage. You have to get the lender’s approval for that, which usually requires one of the steps above.
- Quit claim deed – You can file a Quit Claim Deed at any time. You don’t have to refinance to do so. But, this does leave you with the liability of the mortgage should the other owner stop paying. If you want to be released from the mortgage, you must talk to the lender about your options.
- Divorce Decree – Even if you have a legal divorce decree that releases you from the liability on the mortgage, you aren’t formally released. The lender can still hold you legally liable until you officially remove yourself from the mortgage with the lender’s approval.
Removing your liability for a mortgage is a complicated process. Before you enter into homeownership, make sure you carefully consider all legal angles. Once you sign on the dotted line, you are liable for that mortgage until it’s paid in full. Thinking about the future implications of buying a home can help the situation. If you find yourself in a dispute and want out of the mortgage, you may need the help of the lender and/or the court to get out of it.