Financing a home with someone else allows you to afford a larger mortgage because your lender takes both incomes into consideration when issuing the loan. However, if either of you wants out of the agreement before the mortgage is paid off, the situation becomes tricky. Your lender will probably require that the mortgage be paid in full before releasing either of you from the debt. If you cannot pay it yourself, you may consider refinancing or selling the home. If your credit is good, a process called "novation" may also be an option to take a name off a mortgage.
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When you finance a home on your own, you are responsible for 100 per cent of the monthly mortgage payment. Financing a home with a co-borrower does not change this obligation. Co-borrowers each hold equal ownership benefits and equal responsibility for the property. This also protects the lender in the event of a default. If one borrower stops making the mortgage payments, the lender can legally seek the payment from anyone whose name appears on the loan as a joint applicant.
To remove your co-borrower's name from the mortgage you may consider refinancing the home. Refinancing occurs when a second lender pays off the mortgage owed to the original lender and writes a new loan. You can apply for refinancing without a co-borrower. This ensures that no one other than you has a stake in the property. To refinance, you must prove that you have the necessary income to comfortably make the payments on your own. If your credit is not as good as the credit of your co-borrower, you may end up with a higher interest rate and thus higher mortgage payments after you refinance. Your new lender will expect you to pay closing costs to procure the new loan.
When a property is sold, the buyer obtains a mortgage loan that is used to pay off the existing loan that you and your co-borrower owe. The home, and all of the responsibility for making payments on the home, is transferred from you to the new buyer. This removes both your name and your co-borrower's name from the mortgage. You are then free to seek a new mortgage loan in your name only.
Negotiating a successful "novation" agreement with your mortgage lender is challenging but not impossible. Novation is a process by which the lender agrees to remove an individual's liability to the mortgage. By using a novation agreement, the same mortgage loan remains in effect with the same lender. Novation requests are only successful if the individual intending to keep the mortgage has an exemplary credit history. The reason for this is that by releasing your co-borrower from any legal payment obligations, the lender is taking a risk. If you cease to make payments, your former co-borrower cannot be pursued for the balance of the debt. If a lender agrees to grant you novation, you must provide income documentation to prove you can afford to pay the mortgage payments without assistance.
Quit Claim Deed
A quit claim deed is not an effective way to take a name off a mortgage. A quit claim deed is a document that once signed, forfeits an individual's claim on a property. By signing a quit claim deed, you give up your legal right to use the property or recover any profit from the sale of the property, as well as the rights to any equity you helped build. A common belief is that a quit claim deed also exonerates the signer from any financial obligations to the property's mortgage. It does not. When you sign a quit claim deed, you give up all of your benefits but retain your responsibilities.
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