There may come a time when you need to remove a name from a mortgage. Perhaps one of the borrowers no longer lives at the property, or you'd like to free up some borrowing capacity for a co-signer. Unfortunately, it's not easy to pull this off. But there may be other ways to get what you need.
Lenders are Hesitant to Remove Names from the Mortgage
Why is it so hard to get somebody removed from a mortgage? Because lenders are afraid of what might happen. As it stands now they can go after several people if you stop making payments; each person on the mortgage is an opportunity to collect. Getting rid of one of those opportunities means lenders are less likely to be repaid.
It is possible to get a name removed from a mortgage, but it’s highly unlikely. In most cases, lenders essentially refinance a loan by requalifying whoever will remain responsible for the loan. So you can always ask about getting somebody removed -- lenders may have a program that makes the process fast and easy -- but be aware that the remaining borrower will probably have to qualify (meaning the borrower has sufficient income, good credit, and otherwise qualifies for the loan individually).
Alternatives to Removing a Name from the Mortgage
If you can’t get somebody’s name taken off the mortgage, you still have options.
The best way to separate somebody from a loan is to refinance the loan. For example, a couple may wish to put a joint mortgage in one person’s name. That person should apply for the loan individually. If approved, the old loan will be paid off and replaced with a new one. Clean and simple.What’s the catch? The individual may not qualify for the loan individually. Perhaps they don’t have sufficient income (for acceptable debt to income ratios) or they have poor credit. A co-signer may help get the loan approved, but you may have the same problem down the road -- where the co-signer wants to get away from the loan. loan to value ratios won’t work. This has been a common problem in hard-hit housing markets.
When refinancing won’t work, the options get especially unattractive. You may have to sell the property, or somebody may go into bankruptcy. Before doing anything drastic, talk to a local real estate agent and local attorney. With a clear understanding of your situation (as well as local markets and state laws), they may be able to find a creative solution.
Same Story for Co-Signers
All of the above is the same for co-signers who want to be removed from 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.