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Unwinding partnerships: When one party wants out of a mortgage

by Meg White

Unwinding partnerships: When one party wants out of a mortgage

For Dan Rogers, senior vice president of mortgage lending and regional manager at Guaranteed Rate in Palos Heights, the benefits of teaming up to buy a property are obvious. Sometimes what’s not so clear in the beginning are the risks. “Buying together can be great. It can be much cheaper than renting and provide the ability to get a bigger, better property,” he said. “But with this comes potential risks.”

As an experienced lending professional, Rogers has seen his fair share of these difficult situations. “Occasionally, we get a call from a customer that we did a loan for, to purchase a home with a partner or friend, saying that they want off the mortgage,” he said. “It can be for any number of reasons: no longer getting along, wanting a place of their own or perhaps one partner is not contributing to the joint ownership.”

Regardless of the reasons, his clients want him to step in and fix the issue. But there are many misconceptions about the simplicity of the process, according to Rogers. “This is not an easy fix,” he said, noting that many borrowers think all they need to do is execute a quitclaim deed to remove a person from a mortgage. “That’s only from the title or ownership perspective. The mortgage company will not remove them from the mortgage and the obligation to pay.”

So what should you tell a client who’s facing such a situation? Rogers suggested referring them to a trusted lender. “The only way to do this is a full refinance of the loan,” he said. But this, too, is not always an easy fix, due to a number of difficult scenarios.

“The owner may not qualify on their own for the new loan. If a down payment was contributed by both parties, there may be no way to get it back out of the property because of cash-out refinance guidelines,” Rogers noted. “Or one owner might not have enough savings to cash out the other person.”
Yet another reason for agents to ask the tough questions at the beginning of the process, rather than leaving clients to face them at the end.

Important questions to ask:

What is the goal of the purchase?
How long do each of you plan to own this property?
What is the combined budget for the down payment and monthly mortgage bills?
Where is the down payment coming from?

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