How To Get Out Of A Mortgage: When To Walk Away, How To Remove Your Name And How To Get Out Legally
Scott Steinberg6-minute read
February 27, 2022
How can you get out of a mortgage and walk away legally without significantly impacting your cash flow, household budget, or good reputation? It’s an important question to ask if you’re having trouble making ends meet, as knowing how to get out of a mortgage can save you from financial ruin.
Can You Get Out Of A Mortgage?
The short answer is yes: It is possible to get out of a mortgage if you find yourself under financial pressure or growing duress for any number of reasons, such as the below.
You can’t make your mortgage payments.
It’s not uncommon to be temporarily unable to make ends meet, especially in challenging and uncertain economic times. In addition, other unforeseen events such as unexpected job loss, mounting medical bills, and growing credit card debt can also make it hard to keep up with monthly mortgage payments.
You have to move or relocate.
Having to move suddenly, whether for reasons of work or a family emergency, may often prompt homeowners to quickly pick up and move, no matter how long they’d initially planned to stay in a residence.
You and your partner have separated.
Divorce rates among married couples are rising around the world. Unfortunately, co-borrowers who separate or divorce may find themselves struggling to manage ownership, mortgages, and other expenses at a time when finances may be unpredictable and uncertain.
You’ve found a similar property for less.
If you owe more on your mortgage than the market value of the property and have found a similar home that costs significantly less, you may wish to get out of your mortgage as well.
How To Get Out Of Your Mortgage Legally
You may be surprised to learn that there are numerous ways to get out of your mortgage legally. As you go about considering whether it makes sense, keep the following options in mind.
Getting out of a home mortgage doesn’t have to be as time-consuming or difficult as you may think. For example, you might:
- Sell your home – Listing your home for sale and finding a buyer for it can help provide needed funds with which to pay off the remainder of your home mortgage loan. It’s important to have enough home equity in the property to produce enough funds to pay off your remaining mortgage balance (and hopefully something extra to put back in your pocket).
- Request a deed in lieu of foreclosure – A deed in lieu of foreclosure arrangement can help stave off financial hardship. Under its terms, you’ll give your mortgage lender the deed to your home, releasing you from your mortgage responsibilities and avoiding having a foreclosure appear on your credit report. These agreements effectively make it possible for a lender to recoup some of its financial losses without forcing a property owner into foreclosure.
- Have a short sale – Short sales happen in real estate when homeowners facing financial hardship sell a home for less than they paid for it and owe on the mortgage. Should one occur, the financial lender who provided your mortgage will receive all proceeds of the sale and will either forgive the remaining balance that you owe or arrange for you to make later repayment.
- Rent out your home – If you should find yourself in challenging financial circumstances, you may wish to rent out your house until you have the budget and means to afford to be able to live in it again. Those living in high-traffic areas (major urban cities where rental options are in high demand and monthly rent payments are significant) may find that temporarily becoming a landlord can offer financial relief.
- Let your house go into foreclosure – When a house goes into foreclosure, it is turned over to the lender. Foreclosure is a legal process that occurs when you’re unable to continue making your mortgage payments and, as a result, forfeit rights to the home. When it happens, the bank, credit union, or financial provider that issued your mortgage will take ownership of the home. However, be advised that a foreclosure – while capable of releasing you from mortgage debt obligations – will appear on your credit history.
- Voluntarily default and walk away – A strategic default occurs when a borrower opts to stop paying their mortgage, typically due to outside factors such as the market value on the property having fallen way below the amount owed on the mortgage. Although it can free you from your mortgage obligations, it is only to be used as a last resort, as those who utilize this strategy can expect to take a serious hit to their credit rating.
- Talk to your lender – Homeowners who find themselves under financial duress are advised to speak with their lender as soon as possible. Oftentimes, your financial provider – who wants to find a practical solution to get paid as much as you want to find a practical solution to make payment – can offer ideas, suggestions, and support to help you through times of financial hardship.
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How To Get Out Of A Joint Mortgage
Looking to remove someone else’s name from a joint mortgage? There are several ways you can go about facilitating this.
- Refinance the loan – Mortgage refinancing refers to the process of obtaining a new home loan. At the time you refinance, your new mortgage loan will repay your old mortgage loan in its entirety, leaving you with a single loan and monthly payment. By refinancing your home loan, you can get out of a joint mortgage or remove another party’s name from the loan.
- Use a quitclaim deed – A quitclaim deed is a legal document that enables you to transfer ownership interest in a property from one party (the grantor) to another (the grantee). Quitclaim deeds allow for a rapid transfer of ownership to other parties and offer a means through which to remove someone else’s name from your home loan.
How To Get Out Of A Reverse Mortgage
Take one out, and you can receive monthly payments from your home’s value rather than be faced with the prospect of paying down your home. Reverse mortgages are typically used by individuals of retirement age who need added income to better cover their expenses or who wish to lower monthly mortgage payments. Rocket Mortgage® does not offer this option.
However, it’s not uncommon for homeowners to also desire to get out of a reverse mortgage because they cannot physically live in the home anymore, wish to spare their heirs from having to pay back a loan, or a variety of additional reasons.
- Use your right of recission – The right of recission, as defined and provided for in the Federal Truth in Lending Act, gives you the ability to cancel and back out of a home equity loan or line of credit within the first 3 days of closing upon it.
- Pay off the reverse mortgage – Homeowners also have the option to pay off a reverse mortgage with personal savings, or by taking out a conventional loan.
- Refinance to a traditional loan – As with other mortgage types, you can also refinance your reverse mortgage into a traditional loan if preferred.
Alternatives To Getting Out Of A Mortgage
Of course, there are also other alternatives that you can pursue in lieu of simply getting out of your mortgage as well.
- Seek a loan modification – A loan modification is a change to the original terms of your mortgage loan which alters the conditions of your loan agreement. Reach out to your lender if you wish to obtain one.
- Rent out your home – As above, renting out your home to prospective tenants can also produce additional income in times of need and provide a handy way to help you make mortgage payments.
- Get a cash-out refinance – A cash-out refinance is a form of mortgage refinance that creates the option for you to borrow more than you owe on your mortgage and pocket the difference (which represents the equity that you have built in your home).
Pros And Cons Of Getting Out Of A Mortgage
Getting out of a mortgage comes with advantages and disadvantages attached.
- Allows you to get yourself out of a frustrating financial situation.
- Separated or divorced homeowners can remove themselves from a mortgage.
- You’re free to get a new home and mortgage.
- Helps alleviate the stress and burden of significant outstanding debts.
- Defaulting or going into foreclosure will hurt your credit score.
- You’ll have fewer options if you can’t sell your home.
- You may have trouble getting another mortgage in the future.
- Foreclosures and defaults will be reflected in your credit history and rating.
The Bottom Line
Having to get out of a mortgage isn’t a preferred option for many homeowners, but is a relatively common one nonetheless. Luckily there are many solutions for legally getting out of a mortgage if you find yourself in unexpected financial duress.
Looking for help with a solution? Consider refinancing today through Rocket Mortgage®.
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