What happens to a joint mortgage after a separation?

If you are separating or divorcing the person you have a joint  mortgage with, there are a few different options of what to do.

One option is to sell the home. That means you would no longer have any financial ties to each other. But it means both of you will need to find somewhere else to live.

If both of you want to leave the house, but don’t want to give up ownership, then you could explore the option of renting it out. If you do this, either one or both of you can still own the home. If both of you want to still own the home, you’ll have to split the rent two ways, and you’ll still be on a joint mortgage with financial ties to each other. If just one of you wants to rent the property out, they’ll have to buy out the other from the mortgage. 

One of the most common choices is to have one partner buy the other out and transfer the joint mortgage to one person.

Use this guide to see your options for buying out your ex-partner: How can you buy a partner out after separation?

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FAQs About A Joint Home Loan

Can three people be on a mortgage?

There is no legal limit to how many people can be on a mortgage, but your lender may have restrictions in place. Remember that everyone on the loan also has to be able to qualify for it to be approved, and some lenders may see a big group of names as a potential risk.

Even if multiple people aren’t on a loan, keep in mind multiple parties can still own a property through joint tenancy or tenancy in common.

Can a joint mortgage be transferred to one person?

A mortgage can technically be transferred to one person via a refinance. For this to happen, you will either need to refinance to a sole ownership loan or, if your partner will not agree to it, a cash-out refinance that will give them their equity in exchange for the title of the house.

Can an unmarried couple buy a house together?

Yes, an unmarried couple can buy a house together. You don’t have to be married to another person to buy a house with them or get a joint mortgage. However, there are some factors to consider when buying a home as an unmarried couple that you’ll want to research to make sure you’re getting the best deal when applying individually or for a joint mortgage.

In a joint mortgage, what happens if one borrower dies?

If a co-borrower dies, then responsibility for the mortgage payment falls to the surviving borrower(s). If the deceased party had their name on the home’s title, partial ownership could potentially pass to a family member or heir through a will – otherwise, probate court will determine what happens to the deceased party’s share of the title.

Pros Of A Joint Mortgage Loan

So, why would you want to get a joint mortgage loan over a loan with just your name on it? Here are a few of the benefits that come along with getting a joint home loan.

More Housing Options

With a joint mortgage, you get the chance to pool your income with another person’s. This can potentially give you the opportunity to pursue homes that would otherwise be out of your individual price range, not to mention you’ll likely be able to qualify for a larger loan.

Tax Benefits

As with most mortgage loans, you can typically deduct joint mortgage interest – and some other fees – when filing taxes. Typically, the person who actually paid the interest (and property taxes) is the one entitled to deduct the expenses on their report. If both you and your spouse or co-borrower paid a share of the interest or taxes, you will want to attach an explanation of that and how much you each paid to your return.

Removing a name from the deed

Regardless of which method you use to take your ex’s name off the mortgage, you’ll also need to get their name off the deed.

You usually do this by filing a quitclaim deed, in which your ex-spouse gives up all rights to the property.

Your ex should sign the quitclaim deed in front of a notary. One this document is notarized, you file it with the county. This publicly removes the former partner’s name from the property deed and the mortgage.

If you refinance to remove the borrower, the title company will remove the spouse’s name from the deed for you.

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. 

Investigate a Loan Assumption

Probably the easiest way to get one person’s name off a mortgage is by qualifying for a loan assumption. This allows one of the borrowers to permanently take over the existing loan on the same terms while removing the other borrower’s name from the loan. Fees apply, but this is cheaper and easier than any other option open to you.

But there is a catch: Most loans are not assumable. Look at the language in your note/mortgage agreement or speak with your lender to see if yours is. Generally, the only types of loans that are assumable are adjustable rate mortgage (ARM) loans during the adjustable period, VA and FHA loans. If your loan has assumption language in the note, the assuming borrower will still have to qualify for credit based on current underwriting guidelines.

Quitclaim Deeds

With a quitclaim deed, the owner passes the title of a home to someone else, for legal or other reasons. This kind of deed does not remove someone’s name from a mortgage; all rights of ownership are transferred, but loan contracts remain unchanged, and the person who first signed the loan still owes that debt. As a result, a quitclaim deed can leave a borrower worse off than they were before—they owe money on a house, but they no longer have any claim to it as its owner.

Giving up your status as an owner does not mean you give up the responsibility to pay your debt.

Bottom Line

Joint mortgages aren’t uncommon, especially among married couples. When deciding whether to get one, you have a few things to consider. You have to determine what kind of mortgage you want and how you can qualify for it. If applying through a joint mortgage will expand your mortgage opportunities, then it could be the right move for you. Just make sure you and your partner(s) are on the same page when it comes to repayment.

4) Partition the Property

Finally, after all other options have been exhausted and you just want your name off this mortgage, there is one last option to finally remove yourself from the mortgage: a partition action. A partition action is a court order forcing the sale or division of shared property. A partition by sale would force the shared property to be sold, thereby allowing you to unlock the full value of your share of the home. Your co-owner would also receive their fair share of the equity.

Allowing a co-borrower to remain in a home that he or she cannot afford while your name remains on the mortgage isn’t benefitting either side. Your co-borrower may be clinging to the property by refusing to let you off the mortgage, but the reality is that the home is well beyond his or her means. Hence, the reason a lender won’t give them a new mortgage on the property without another borrower. Living in a home that one cannot afford causes undue financial stress, especially when it’s possible to sell the home and move somewhere that fits this person’s income range.

Furthermore, depending on how much time has passed and the condition of the real estate, the property value may have gone up significantly. You are entitled to use or get the value from your portion of the real estate. A partition action allows you to do just this, even if your co-borrower insists on keeping the property. In fact, your co-borrower has the right to purchase the property from the partition sale. This allows you to get off the mortgage and give up any interest in the property while allowing your co-owner to remain the property.

If you are ready to end this one-way relationship for good, contacting a knowledgeable partition attorney to force a partition action is the only way to forcefully remove yourself from a mortgage. Indeed, California law allows for a forced sale of a property through a partition action despite the roadblocks your co-borrower may try to put up.

Grease the Wheels

Your lender approved your mortgage based on the income levels and credit scores of all the parties involved. Once they have you on the hook, they won’t let you walk away unless someone else takes over the debt. The only way to do this is to refinance the mortgage in the remaining owners’ names, which involves generating a new loan with its own fees and closing costs.

To convince your fellow mortgagees to do this, offer to pay any closing costs on the refinance. After all, you’re the one who wants out. A refinance costs money and may come in with a higher interest rate than the previous mortgage. Offering to pay all costs incurred in this process will go a long way toward convincing your partners to follow through.

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.

Who can apply for a joint mortgage?

While most borrowers can apply for a joint mortgage, married couples are the most common borrowers of a joint mortgage. Couples in committed relationships also often apply for a joint mortgage. Because young adults often haven’t yet established a strong or long credit history, or may not have sufficient income to qualify on their own, they may opt to apply for a joint mortgage with their parents. Close friends or siblings also may choose a joint mortgage, because it could be more affordable than buying or renting alone.

In most cases, joint mortgages involve two borrowers. However, depending on your lender, you may be able to have more than two. It’s important to talk with your lender to find out what the limitations are for the number of borrowers on a joint mortgage.

Joint mortgage requirements

The process of applying and qualifying for a joint mortgage contains several steps that all borrowers on a joint home loan will need to complete.

Collect your financial paperwork. You’ll need all the necessary paperwork showing your personal information, assets, employment information and income. This includes W2 or 1099 forms, tax returns, bank statements and retirement and/or investment account statements. If you’ve been divorced, pay or receive child support or have filed for bankruptcy, you should also provide statements to that effect.

Make sure you meet all the minimum mortgage requirements for a joint mortgage. Lenders will examine your income and debt to determine your debt-to-income (DTI) ratio — ideally, they’ll want to see a DTI ratio of no more than 43% — and also look at your credit score to see if it meets the minimum required by the loan type. In addition, lenders will want to know how much you plan to pay for your down payment and closing costs. Finally, they will review the loan-to-value (LTV) ratio for the home you plan to buy. This affects several loan terms, including the loan amount, interest rate and monthly payment.

Determine how much you want to spend on your joint mortgage. This goes beyond how much you qualify for on a joint home loan. Your lender may quote you a monthly payment that sounds affordable for your budget, but you’ll need to evaluate this cost with your other regular monthly expenses, such as groceries, gas, utilities, childcare costs and car or student loan payments. You want to have a payment you can comfortably pay each month.

Decide which joint mortgage loan is right for your needs. There are several mortgage programs, each with their own requirements and loan terms. It’s important to review each one to find the right joint mortgage for you and your co-borrower(s).

Choose a mortgage lender that best serves your needs. Today’s borrowers no longer have to rely on the bank up the street for a joint mortgage. Although these can still be a good source of a joint home loan, a mortgage banker or broker also could offer a favorable mortgage for you. Many online lenders also have access to good mortgage products that could be right for you. Take the time to research several of these to find the right fit.

Fill out your joint mortgage application. Once you’ve done your research and have all your documentation ready, you and your co-borrower are ready to start the paperwork. Many lenders allow you to complete a mortgage application online or even over the phone. Of course, you can still go old-school and complete a mortgage application in-person with your lender.

Selling the house

If neither borrower is able to afford the mortgage on their own, the only option may be to sell the home.

Fortunately, there’s a strong seller’s market in many parts of the nation, as housing has been in short supply for some time. So it may be possible for home sellers to get a great offer on their property.

However, if real estate prices have fallen instead of rising, selling the home could be much more challenging — especially if you recently bought the home and made the minimum down payment.

If the mortgage is underwater, you may have to opt for a “short sale.” This is a property sale in which the net proceeds don’t cover all the liens on the property.

If you’re unlucky, your mortgage lender can sue you for the difference between the foreclosure sale proceeds and the loan balance. This is called a “deficiency,” but in many states, lenders can’t come after you for this.Even if the lender releases you from liability, your credit score and your spouse’s will be negatively impacted by a short sale.

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Costs

All of the options above involve fees, so look closely at all of your options before choosing, and decide ahead of time who will pay the fees. Even if you choose to sell the house, and you make some money on the sale, real estate agent fees and other costs will count against your profit.

Of the options listed, a release of liability or a loan assumption are the cheapest, because they avoid the closing costs that come with refinancing.

How to Get Out of a Joint Mortgage: 4 Options to Consider

There are several different options for getting out of a joint mortgage. Some are easier than others, and the right one for you will depend on your specific circumstances.

While this may be the “cleanest” solution, it will also take some work. Refinancing the loan in your name only will require you to prove to the bank that you have enough income, equity, and credit to handle the mortgage payments on your own. In addition, your ex will have to agree to let you keep the house.

If you’re in a solid financial position, this could be as easy as filling out an application and providing your W2s and bank statements.

Depending on what other assets you’ve gathered together throughout the course of your relationship, you may need to “cash-out” your ex. In other words, you’ll have to give him or her 50% of the equity of the home in cash in order for them to agree to have their name removed from the title.

If you have enough equity in the home, then you may be approved for a cash-out refinance. Once approved, you’ll take the cash you received and use it to pay your ex. If this isn’t an option, you could also consider a personal loan.

Note that after this is all completed, you’ll also want to get your spouse’s name off the deed. This is usually done using a form known as a “quitclaim deed.” This is a legal document stating that the individual gives up all legal rights to the property.

When dealing with legal documents like this, it’s always a good idea to work with an attorney so you can make sure everything is done correctly.

A much easier option may be to simply sell the house and split the profits with your ex. Of course, this assumes that there’s currently a market for the home and that you don’t owe more than it’s worth.

Once you sell the home, the mortgage is paid off and you no longer have to worry about the joint liability. You’ll each take your share of what’s left and walk away.

If your home is “underwater” (meaning you owe more on the mortgage than you can sell it for) then you might have to consider a short sale. There are some pretty significant drawbacks to this, so you’ll want to discuss it with a financial advisor and/or attorney before you move forward.

A third option is to apply for a loan assumption. This simply involves informing your lender that you’re taking over the mortgage and you would like your ex removed. In this case, all of the loan terms would stay the same, with the only difference being that you’re now listed as the sole borrower.

However, many mortgage lenders won’t agree to this. At a minimum, they’ll probably require you to prove that you’re in a position to take over the payments on your own.

If they do agree, there’s usually also a charge for this service. On average, you can expect to pay one percent of the loan amount, plus a $250 to $500 administrative fee.

The fourth option will only work if you have a VA or FHA-backed mortgage. An FHA streamline refinance is ideal if you have acquired the home and the FHA loan more than six months ago and have made at least six payments by yourself.

In this case, you can often get approved without a new appraisal and without submitting documentation to requalify. If it’s been less than six months or you haven’t made six payments on your own, you may need to resubmit income verification.

VA streamline refinance works almost the same way. Generally, the person who remains on the mortgage must be an eligible veteran.

2) Refinance the Mortgage on the Property

The next solution to removing oneself from a joint mortgage loan is to refinance the mortgage under a single owner-borrower. Refinancing a mortgage allows a co-mortgage borrower to apply for a new home loan to pay off an existing mortgage. Usually, this will be a cash out refinance to pay out the co-owner who is selling their interest in the property to their fellow co-owner. By removing yourself from the mortgage via a refinancing, you are also removing yourself from any joint and several liability for the loan and will therefore not be liable for repayment of this loan.

However, your co-borrower must have acceptable credit, debt to income ratio, equity, and income as well as your consent in order to refinance. This is process is similar to that of the original loan approval process. Again, the new lender may be leery of a refinance only by a co-borrower, especially if the remaining co-borrow may not be able to make payments on the loan.

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