When you change your relationship status, there’s a lot to unravel. You might have decided who’s going to keep the dog and where each of you is going to live – but if you have a joint mortgage, things are a bit more complicated than that.
If you’ve found yourself in this situation, it’s critical that you learn how to get out of a joint mortgage right away!
You see, the problem is that even if you’ve decided that one of you is responsible for the mortgage and the other is walking away, the lender doesn’t see it that way! Until you make legal changes, you are both “jointly and severally” liable for the loan.
What does this mean and how can you fix it? Keep reading to find out!
Joint Mortgage Liability 101
First, it’s important to understand what a joint mortgage is. In the simplest of terms, it’s an agreement in which you both take responsibility for paying bath the loan amount. This agreement has nothing to do with your relationship status, and, frankly, the lender doesn’t care.
Unfortunately, even getting a divorce doesn’t free you from this obligation to the lender. This means that even if you’ve agreed that one partner will pay all mortgage payments, if something goes wrong, it will impact both of your credit scores. If the loan goes into default, the lender can come after both – or either – of you.
The only way to fix this is to legally remove either yourself or your ex from the mortgage. Although this isn’t always easy, it is possible.
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.
Refinance the Loan
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.
Sell the House
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.
Request a Loan Assumption
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.
Get a VA or FHA Streamline Refinance
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.
Getting Back on Your Feet After a Breakup
Going through a divorce or breakup of a serious relationship can have a major impact on your finances. While knowing how to get out of a joint mortgage is a great first step, it’s likely not the only challenge you’ll face.
Luckily, we have plenty of informative posts on our blog to help you take control of your finances, no matter what stage of life you’re at. Take some time to scroll through a few more of our posts today!