Do You Have to Refinance With a Quit Claim Deed?

A quit claim deed transfers an interest in real property. Refinancing replaces an existing mortgage with a new one, often for different terms or interest rates. A quit claim deed is not always required for a refinance; its necessity depends on specific circumstances and the goals of the property owners.

What a Quit Claim Deed Does

A quit claim deed is a legal instrument that transfers a grantor’s ownership interest in a property to a grantee. It provides no warranties or guarantees regarding the title’s validity or clarity. The grantee accepts the property “as is,” including potential defects or claims.

This deed does not remove someone from mortgage liability; it only affects property ownership, meaning the legal title. Common uses include transferring property between family members, dividing property in a divorce settlement, or resolving minor title issues. It modifies ownership records on a property’s title, independent of any financial obligations.

How Refinancing Affects Property Ownership and Debt

Refinancing involves obtaining a new loan to pay off an existing mortgage. Individuals often refinance to secure a lower interest rate, adjust loan terms, or access home equity through a cash-out refinance. This process typically requires a new title search and the creation of a new deed of trust or mortgage, which legally encumbers the property.

All individuals responsible for the new mortgage loan must also be listed on the property’s title. This alignment is necessary for the lender to secure the new loan against the property. The refinancing process adds or removes individuals from the mortgage obligation, altering debt terms and formally recognizing new borrowers.

When a Quit Claim Deed is Used with Refinancing

A quit claim deed is not always required for a mortgage refinance. Its necessity arises when there is a need to change who is on the property’s legal title in conjunction with changing who is responsible for the mortgage through refinancing. In such cases, the quit claim deed is typically executed and recorded either before or simultaneously with the refinance process. This ensures property ownership aligns with those responsible for the new mortgage.

One common scenario involves divorce, where a departing spouse executes a quit claim deed to transfer ownership to the remaining spouse. Simultaneously, the remaining spouse refinances the mortgage into their sole name, removing the ex-spouse from loan liability. This illustrates how the quit claim deed handles ownership transfer, while the refinance addresses debt.

Similarly, if property owners wish to add a new co-owner, such as a spouse or family member, to both the title and the new mortgage, a quit claim deed would be used. Conversely, if an existing co-owner needs to be removed from both the title and the mortgage, the same dual approach is employed. In estate planning or gifting situations where property with an existing mortgage is transferred, both a quit claim deed and a refinance might be involved to restructure the loan under new ownership. The quit claim deed transfers the property interest, and the refinance formally changes the mortgage liability; they are distinct legal actions that often complement each other.

Important Considerations for Property Transfers and Mortgages

Individuals contemplating property transfers alongside mortgage refinancing should consult a qualified mortgage lender early. Lenders have specific requirements regarding who must be on the property deed for a new loan to be approved. Understanding these requirements from the outset can help streamline the process.

Consulting a real estate attorney or legal professional is also advisable. They ensure the quit claim deed is properly executed and recorded, addressing legal implications, especially in complex situations like divorce or significant property transfers. Legal guidance helps navigate potential complexities, such as “due-on-sale” clauses in existing mortgages, which might allow a lender to demand full repayment if ownership is transferred without consent. While not always enforced, particularly in family transfers, legal advice provides clarity.

Changing mortgage responsibility can have financial implications, including impacts on credit scores. If an individual remains on a mortgage after transferring ownership via a quit claim deed and the new owner defaults, the original borrower’s credit can be negatively affected.

Various costs are associated with these actions. These include recording fees for a quit claim deed, typically ranging from $10 to $100 (though they can be higher in some counties), notary fees usually falling between $10 and $50, and legal fees for drafting and reviewing a quit claim deed, which can average around $510 with some services ranging up to $1000.

Real estate transfer taxes may also apply, varying significantly by jurisdiction. These taxes can be a flat fee or a percentage of the property’s value, sometimes ranging from 1% to 3% of the consideration. Who pays these taxes can also vary. The quit claim deed must often be completed and recorded before the new refinance loan closes, ensuring the new mortgage is secured by the correct ownership.