How to Remove a Co-borrower from Your Mortgage Loan

Getting divorced or separating from your spouse often means making big changes to your finances including your mortgage. If you bought a house with someone else and took out a mortgage together removing them from the loan can be complicated. As co-borrowers, you are both equally responsible for repaying the mortgage debt. Simply taking your ex-spouse off the property deed does not remove their obligation to the lender.

In this detailed guide, we’ll walk through the most common options for removing a co-borrower from a mortgage loan so you can untangle your finances.

Why Remove a Co-borrower from the Mortgage?

There are a few key reasons you may want to remove a spouse or co-borrower from the mortgage loan:

• You’re getting divorced. As part of dividing up assets and debts, you’ll likely want to remove your ex from the mortgage if you’re keeping the house.

• Your co-borrower can’t contribute. If a friend or family member co-signed to help you qualify but can no longer make payments, you’ll want to remove them from liability.

• You want to refinance. Taking a co-borrower off the mortgage may allow you to qualify for better loan terms on your own.

• You want to protect your credit. If your co-borrower damages their credit, it could hurt you too if you remain jointly liable for the mortgage

Removing a co-borrower shifts full responsibility for the mortgage payments and debt to the remaining borrower. This takes them off the hook for the loan while freeing you from relying on them to make payments.

Refinancing to Remove a Co-borrower

The most straightforward way to remove a co-borrower from your mortgage is to refinance the loan in your name only. With an individual mortgage refinance, you apply for a new home loan to pay off and replace your existing shared mortgage. This new loan would be under your name exclusively.

Refinancing to remove a co-borrower usually involves the following steps:

• Review loan options and interest rates from lenders
• Complete a new mortgage application on your own
• Provide documents to verify income, assets, and credit history
• Obtain an appraisal to confirm the home value secures the new loan
• Close on the refinance loan which pays off the old mortgage
• File paperwork to remove your co-borrower from the home title

The major requirements to refinance and remove a co-borrower are:

• Having enough income/assets: You’ll need to qualify for the full monthly mortgage payment on your own.

• Good credit scores: Usually 640+ FICO score to get approved without a co-signer.

• Sufficient home equity: Typically at least 20% to avoid private mortgage insurance (PMI).

While refinancing can remove your co-borrower, it also comes with costs. Closing costs for refinancing often total 2% to 5% of the loan amount. And if interest rates have risen since you got your original mortgage, your monthly payments could increase with a refi.

Alternatives to Refinancing

If refinancing the mortgage isn’t an option for you right now due to costs or qualification challenges, there are a couple alternatives to consider:

Mortgage Assumption

With a mortgage assumption, you take over the loan in your name only, leaving your co-borrower’s name off. The original loan terms stay the same. Mortgage assumptions require lender approval and generally involve a fee of about 1% of the loan amount.

Not all lenders allow assumptions. And you usually need the co-borrower’s consent and a divorce decree or separation agreement. The lender may also require proof you can afford the full monthly payments yourself.

Mortgage Modification

Your lender may agree to modify your existing mortgage by removing the co-borrower through a modification agreement. This adjusts the loan without refinancing. Modifications usually need to meet the lender’s hardship requirements.

Like assumptions, not all lenders permit modifications. You’ll likely need your co-borrower’s consent and court papers from your divorce or separation to proceed. The lender may charge a fee for the modification process as well.

Selling the Home

If refinancing or alternative options won’t work, selling the home may be the only solution. This removes both you and your co-borrower from the mortgage loan since the sale pays it off.

However, selling can be difficult if you have little equity or still owe more than the property is worth. You may need to negotiate a short sale with the lender. This sells the home for less than the mortgage balance, but avoids foreclosure.

Selling the house also means giving up your ownership and starting over with a new home purchase. So explore other options first if possible.

Pros and Cons of Removing a Co-borrower

Removing a co-borrower from your mortgage loan has advantages and disadvantages to weigh:

Pros

• Frees you from relying on your co-borrower to pay
• May allow you to qualify for better loan terms
• Protects your credit if co-borrower damages theirs
• Can remove spouse through divorce agreement

Cons

• Refinancing costs money (2% to 5% of loan amount)
• You must qualify for mortgage independently
• Mortgage rate/terms could worsen if you refinance
• Lender may not allow assumption or modification

Overall, removing a co-borrower makes you solely liable for the mortgage debt. While refinancing is often the way to go, consider all your options to find the most appropriate solution.

Steps to Take Next

If you want to move forward removing your co-borrower from the mortgage, here are some recommended next steps:

• Talk to your lender. Ask what options they allow, any requirements, and associated fees.

• Check mortgage rates. See what interest rates you could qualify for if refinancing the loan yourself.

• Review your finances. Calculate your debt-to-income ratio and assess if you can afford mortgage payments solo.

• Consult your divorce attorney. If relevant, have them review any proposed mortgage changes.

• Start gathering paperwork. You’ll likely need pay stubs, tax returns, bank statements, and other docs to apply for the new loan.

Removing a co-borrower from your mortgage takes time and preparation but can greatly simplify your situation. Reach out to lenders and legal counsel to explore your options and choose the most suitable path forward. With the right approach, you can successfully untangle your home loan and move ahead financially.