Can You Take a Cosigner Off a Mortgage?

Removing a cosigner from a mortgage is a common inquiry for many homeowners, yet the process can present various complexities. While generally possible, success hinges on financial factors and adherence to specific procedural steps. This article guides you through the necessary conditions and detailed procedures for this financial adjustment.

Borrower Eligibility for Removal

The primary borrower’s individual financial strength is paramount when seeking to remove a cosigner from a mortgage. Lenders thoroughly assess the borrower’s capacity to manage the loan independently.

A strong credit score is a foundational requirement, typically needing a FICO score of at least 670. Some conventional loans may accept scores around 620, and FHA loans can go as low as 580. A higher credit score generally leads to more favorable loan terms and a greater likelihood of approval.

Lenders also scrutinize income stability and sufficiency. This involves verifying consistent employment and adequate income levels. Required documentation includes pay stubs for the most recent 30 days and W-2 forms from the past two years.

Self-employed individuals typically need to provide tax returns for the past two years and profit and loss statements. Bank statements for the most recent two months are often required to confirm asset availability and income flow.

The debt-to-income (DTI) ratio is another critical metric, comparing your total monthly debt payments to your gross monthly income. Lenders generally prefer a DTI ratio of 36% or lower, though some may approve loans with ratios up to 43% or even 50% for specific loan types like FHA. This ratio includes all recurring debts such as credit card minimums, car loans, and student loan payments. A low DTI demonstrates a borrower’s capacity to handle additional financial obligations, reducing perceived risk for the lender.

A consistent and positive payment history on the current mortgage is also highly significant. Lenders evaluate the borrower’s record for on-time payments, which indicates reliability and responsible financial behavior. This comprehensive assessment ensures the primary borrower can realistically take on the full mortgage obligation.

Pathways for Cosigner Removal

Several methods exist for removing a cosigner from a mortgage, each with specific requirements and documentation.

Refinancing

The most common approach involves refinancing the mortgage. This entails applying for an entirely new loan solely in the primary borrower’s name. The new loan then pays off the existing mortgage, releasing the cosigner from their obligation. For a refinance application, borrowers typically need to provide:
Photo identification
Authorization for a credit report pull
Proof of homeowners insurance
W-2 forms from the previous two years
Pay stubs from the last 30 days
Bank statements for the most recent two months
Two years of federal tax returns (for self-employed individuals)
Asset statements for all bank, investment, and retirement accounts
Current mortgage statement
Property deed
Property tax statement

Loan Assumption

A less common, yet viable, option is a loan assumption, where the lender may permit the primary borrower to “assume” the existing loan without the cosigner. This method is often more feasible with government-backed loans such as FHA, VA, or USDA loans, as conventional loans typically have “due-on-sale” clauses that prevent such transfers. For a loan assumption application, required documentation generally includes:
W-2 forms and 1040s from the past two years
Asset statements covering the last two months
Pay stubs from the most recent 30 days
Credit explanation letter (if requested)
Finalized divorce decree (if assumption is due to divorce)
Copies of the original loan documents
Current financial statements

Loan Modification

Loan modification, while primarily designed to assist borrowers facing financial hardship, can facilitate cosigner removal. This method involves a permanent change to the original terms of the promissory note to make payments more affordable. To request a loan modification, borrowers must typically submit:
A formal application
Recent pay stubs
Comprehensive financial statements detailing income and expenses
Tax returns
Bank statements
A hardship letter explaining the circumstances
Supporting documentation for the hardship
IRS Form 4506-T or 4506-EZ (for tax transcript verification)

The choice among these pathways depends on the current lender’s policies and the primary borrower’s specific financial circumstances.

The Removal Application Process

Once the primary borrower has gathered all necessary documentation, the next phase involves initiating the formal application process. The initial step requires contacting the current mortgage lender or loan servicer to inquire about their specific procedures for cosigner removal. Direct communication is essential to obtain accurate guidance.

After understanding the lender’s instructions, the borrower submits the complete application package. Submission can typically be done through online portals, mail, or in-person. Ensuring all prepared documents are accurate and complete before submission can prevent delays. An incomplete application often leads to requests for additional information, prolonging the timeline. Promptly providing any requested information is crucial to avoid further delays.

Following submission, the lender initiates a thorough review and underwriting process. A mortgage underwriter examines the borrower’s financial profile, including credit history, income, assets, and property details. This involves running updated credit checks, verifying employment, and confirming income and asset information. For refinancing, a property appraisal will typically be ordered to determine the home’s current market value. This underwriting stage is a comprehensive risk assessment and can take one to three weeks.

The lender’s review will result in one of several outcomes: approval, conditional approval, or denial. A conditional approval means the loan is approved in principle, but the underwriter requires additional documents or clarifications. If the application is denied, the lender is typically required to provide a reason, which can help the borrower understand what financial areas need improvement.

For approved cases, the final steps involve closing the new loan or formally amending the existing one. For a refinance, this entails signing new loan documents, typically within 30 to 45 days from the initial application. Borrowers should carefully review all closing documents, including the closing disclosure, which outlines the final loan terms, monthly payments, and any remaining costs.

A three-day rescission period often applies to refinances, allowing the borrower to cancel the new loan within that timeframe. For loan assumptions or modifications, the final step involves formalizing the changes to the existing mortgage, which may include signing an amendment or an assumption agreement.