How to Remove a Name From a Mortgage: Refinancing and Other Options
If you’re interested in removing someone’s name from a mortgage, there are a number of ways you can do this, including buying out their equity interest in the house or taking over the mortgage through a loan assumption. One of the most common reasons for removing a name from a mortgage is a divorce, which can be messy, especially when you and your spouse must work through the logistics of dividing valuable assets, including your home.
Regardless of your reason for removing a name for your mortgage, you’ll need to decide whether you want to sell the house and split the profits, or if one person will remain on the property. In most cases, the person who’s keeping the home would need to refinance the mortgage as the sole borrower. But this process can come with its own set of challenges. In this guide, we’ll walk you through how to remove a name from a mortgage.
- How to remove a name from a mortgage without refinancing
- Do I have to refinance after a divorce?
- Should you refinance your mortgage before a divorce?
- What happens if the house isn’t in my name?
- The bottom line
How to remove a name from a mortgage without refinancing
Is it possible to remove a name from a mortgage without refinancing? Well, maybe. Divorcing spouses wondering how to keep a house in a divorce may mistakenly believe that if the divorce decree awards the home (and outstanding mortgage balance) to one spouse, they can simply have one spouse’s name taken off the mortgage. But a divorce decree doesn’t have the power to nullify your mortgage contract.
However, there may be a way to remove a name from a mortgage without refinancing — if you can qualify for a mortgage assumption after divorce.
When you assume a mortgage, you take over the existing interest rate, monthly payments and loan term of that mortgage. Both conventional mortgages and government-backed loans from the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and the U.S. Department of Agriculture (USDA loans) typically allow mortgage assumptions after divorce.
If you and your spouse decide that one of you will assume the mortgage, be sure to check with your lender about whether the other spouse is still liable for the loan. This is especially important if the spouse keeping the home fails to maintain on-time payments. If the other person still has the mortgage listed on their credit report, they will be negatively affected by any late mortgage payments their former spouse makes.
Do I have to refinance after a divorce?
Generally speaking, the most straightforward way to remove name from a mortgage is to refinance it. Because a mortgage refinance involves borrowing a brand-new mortgage for your home, you’ll need to meet several eligibility requirements before you’re approved. Here’s what you need to know to refinance after a divorce:
- Have at least a 620 credit score for a conventional refinance. For an FHA refinance, the credit score minimum is 580.
- Have a maximum loan-to-value (LTV) ratio of 97% for conventional loans and 97.75% for FHA loans.
- Have a maximum debt-to-income ratio of 43% for both conventional and FHA loans. You may qualify for a refinance with a DTI ratio up to 50% in certain circumstances.
If you and your co-borrower have built a significant amount of equity in your home, you may need to get a cash-out refinance to buy out their portion of the equity. In that case, the maximum LTV ratio allowed on a cash-out refinance is 80% for both conventional and FHA loans.
How divorce impacts your ability to refinance
Divorce can indirectly affect your ability to refinance a mortgage in several ways. Here’s how:
- If you applied for the existing mortgage with your spouse, the debt-to-income (DTI) ratio your lender used to make credit decisions took into account both your income and your spouse’s income. When you refinance as an individual, your spouse’s income is taken out of that equation. This could significantly raise your DTI ratio and make it more challenging to qualify for a refinance.
- You may be required to close joint credit accounts, which lowers your total available credit and raises your credit utilization ratio.
- If any joint accounts remain open and your spouse is unwilling or unable to pay the balances due, delinquent payments can negatively impact your credit score. Additionally, a vindictive spouse could make large purchases on joint accounts to intentionally rack up debt and damage the other spouse’s credit history.
- You may miss payments on credit accounts because you are preoccupied with the divorce.
- If all financial accounts were in your ex-spouse’s name, you might have a limited credit history.
Should you refinance your mortgage before a divorce?
If you’ve decided that the best way to move forward in the divorce is by putting the mortgage in your name only through a refinance, you’ll then need to determine whether it makes sense to refi before the divorce is final.
Reasons to refinance before a divorce
You’ll have a better chance of qualifying for a new mortgage. When you jointly apply for a mortgage as a couple, both your and your spouse’s income are considered, which typically gives you more buying power than you’d have as a single borrower. As mentioned previously, two incomes mean a lower debt-to-income ratio, and most lenders want to see a DTI ratio of 43% or less.
For example, say Mike and Leah earn a gross monthly income of $5,000 each, or $10,000 total. Their mortgage payment is $2,000 per month, and they have other debt payments totaling $1,000 per month. Their pre-divorce DTI ratio is 30%.
The former spouses are planning to split their non-mortgage debt 50/50, which would equal $500 per month, per person. If Leah wanted to keep the house after the divorce, assuming her monthly mortgage payment would remain at $2,000, her DTI ratio would be 50% ($2,000 mortgage + $500 other debt payments / $5,000 gross income = 50%). If Leah waits until after they’re divorced to refinance the mortgage, she might have trouble getting approved with a DTI ratio that high, though it’s not impossible.
You’ll be able to establish the true value of the home. In most cases, you’ll need a home appraisal for your refinance to determine your home’s current value. Having this information available when you divide assets with your spouse is helpful.
You could lock in a lower mortgage interest rate. Freddie Mac forecast mortgage rates on 30-year fixed-rate loans at an average of 4% in 2019. While rates are hovering near historic lows, even a small jump could mean thousands of dollars more in interest payments over the course of a 30-year mortgage.
Let’s say Mike and Leah from our previous example are weighing whether to refinance their $150,000 mortgage before or after the divorce is finalized, which they anticipate happening sometime in the next 12 months. We’ll assume they can qualify for the average rate on a 30-year loan mentioned above.
Since mortgage rates are unpredictable and can rise at any given point, let’s say a year from now, rates increased to 4.50%. The table below offers a comparison of the two loans, using LendingTree’s mortgage payment calculator:
|Mortgage 1||Mortgage 2|
(principal and interest)
|Total interest paid||$107,804.26||$123,610.07|
As the table illustrates, waiting a year to refinance (when rates are higher) could cost nearly $16,000 more in interest over the course of a 30-year mortgage.
You can make an informed decision to keep or sell the home. When one spouse wants to keep the house in a divorce, determining what your monthly payment would be after the refi may be a good idea. Going through this process can give both parties an accurate look at how expensive the payments would be for whoever keeps the house.
Realizing you aren’t prepared to take on the financial burden of the mortgage on your own and deciding to sell your home instead of refinancing could save a lot of time and money later.
Reasons not to refinance before a divorce
Your ex-spouse may still be on the mortgage. The biggest issue with refinancing before a divorce is that, in order to take advantage of a lower DTI ratio with your spouse, you’ll have to recommit both spouses’ names to the title of the home and the mortgage, even though only one will continue living in the home and making the mortgage payments. The problem with this is that although one spouse will no longer live in the house after the divorce, they would still be responsible for the mortgage.
Your ex-spouse continues to have a role in your financial decisions. When you make the decision to divorce, you’re probably ready to start making financial decisions on your own. If you refinance with both names on the mortgage before your divorce, your ex will continue to be connected to your finances.
You could get the liquidity to buy your ex-spouse out. If you have quite a bit of equity in your home, your divorce decree may require that the spouse keeping the house buy out the other spouse’s half of the available home equity.
For example, if Mike and Leah own a $300,000 home and have a remaining mortgage balance of $150,000, they have $150,000 in equity. Each spouse is entitled to half of the $150,000 of equity, or $75,000. If Leah plans on keeping the home but doesn’t have $75,000 in cash or other assets to buy out Mike’s share, a cash-out refinance may be the only way to liquidate Mike’s portion of the equity without selling the home.
What happens if the house isn’t in my name?
What if the spouses didn’t jointly borrow the mortgage? What happens if one spouse’s name is not on the house deed in a divorce?
It depends on whether you live in a “community property” state or an “equitable distribution” state. There are nine community property states, according to the IRS:
- New Mexico
If you live in one of the states mentioned above and you or your spouse individually purchased the home you lived in as a couple after you married, each spouse owns a 50% share of the home at the time of divorce — even though only one spouse’s name is on the house deed and title. The 50/50 split generally applies to all property both spouses acquired over the course of the marriage. Any property you acquired separately before the marriage or after the divorce or separation still belongs only to you.
For all other states that recognize equitable distribution, a divorce judge will fairly divide any property, including a home, that the couple acquired during the marriage. Keep in mind that fairly doesn’t always mean equally — in other words, there might not be a 50/50 split. However, for example, if one spouse purchased the home while single and the other spouse moved in after getting married, the house solely belongs to the spouse who bought the home.
The bottom line
Removing a name from a mortgage can be an involved process, so the most effective way to handle it is by first speaking with your lender about your available options.
Be clear on whether you can assume the mortgage and have your co-borrower released from liability for the loan. If your best or only option is a refinance, evaluate your financial situation to determine whether you can afford — and qualify for — a mortgage on your own. Remember that having a name on the mortgage is not necessarily the same as being listed on the title of the home, make sure you review all documents and terms clearly, particularly if your’e interested in keeping the house in a divorce.