How to Buy a Co-Borrower Out of a Joint Mortgage
A joint mortgage can be a great tool to get the house you want. With the help of a co-borrower, you can get approved for a more expensive house than you could on your own. While it can be a great thing to use, you may run into problems down the road. Sometimes, people in a joint mortgage want out. When this happens, one party will have to buy out the other party. Here are some things that you need to consider when buying someone out of a joint mortgage.
A joint mortgage is an agreement with two or more people to purchase a house. The bank approves the loan based on the collective credit files and income of all parties. This makes it easier to get approved. While this can be productive, the problem comes in when a relationship is strained. This is a common arrangement with married couples. Since about one out of every two marriages end in divorce, you should carefully consider how you will get out of a mortgage.
This problem also occurs between friends and business partners. You might decide that you are tired of throwing away money on rent and buy a house with your friends. You all have an equal share in the house, but you all are ready to move on at different times. Separating everyone's rights to the property can get a little tricky.
In order to buy out the other person, you need to do a little research. You will need to
determine the value of the property. The best way to do this is with a real estate appraiser. They can tell you what the house is worth in today's market. Once you determine how much the house is worth, it is easier to determine what the other party is owed for their share.
Take the amount that the house is worth and subtract it from the outstanding mortgage balance. Take that difference and divide it by the number of parties in the joint mortgage. That number represents a fair settlement. You can add to or subtract from that number depending on a number of factors.
In order for the party that has been bought out to relinquish their rights to the property, you will have to get them off of the deed. In order to do this, you will have to have them sign a quit claim deed. This officially dissolves any rights they have to the property.
In many states, if the party is a spouse an Interspousal Grant Deed is required in lieu of a quitclaim deed because it stipulates the rights of a spouse specifically.
Now that the other party has agreed to relinquish their rights to the property, you will need to refinance the loan. If you do not get a new loan, they will still be financially obligated to the property even though they have no right to the property. It will now be necessary for you to qualify for the loan on your own merit.Source: loan.com