WHY CHANGE NAMES ON A LOAN?
There are some valid reasons why names are added or removed from an existing loan. When couples divorce, the spouse keeping the home usually will want to remove the other spouse from the loan. They often will refinance it to remove the other spouse from the loan. Also common, first-time buyers may not have enough income to qualify for a loan. They may then ask a parent to co-sign and must therefore add their name to the mortgage.
Another situation that requires removing or adding a person to a loan is to qualify for a better interest rate. The difference between a minimally acceptable credit score and a “good” credit score could result in as much as a 0.5% higher rate for the term of the mortgage.
IMPACT OF ADDING OR REMOVING A NAME
Consider a couple that is buying a home on a conventional loan. They have individual credit scores of 760 and 670. The underwriters will price the loan based on the lower of the two scores. A half percent interest on a $400,000 30-year mortgage could have close to $110 a month difference.
A possible solution to this dilemma could be available. Assume the borrower with the higher credit score has enough income to qualify for the mortgage separately. That person would be eligible for the lower rate. The property could still be titled in both names. In this case, the other person whose name is also on the title will be liable for the mortgage should the named borrower default on the loan.
In another situation, a couple has enough income to qualify for a mortgage. However, because one of the parties has a lower credit score, it will be priced higher. The borrower can have a parent or relative added to the mortgage as a non-occupying borrower to help with the credit score. Interest rates are determined on the lowest middle of three scores for the borrowers applying for the loan. Assuming the parent’s score was higher than the lower score of the couple, it could improve the rate applied to the mortgage loan.
BEFORE YOU ACT, CONSULT A PROFESSIONAL
The advice of a trusted mortgage professional is extremely valuable. They can offer alternatives to situations that confront you. This could be worth tens of thousands of dollars over the life of the mortgage. In some cases, their advice may be the difference in being approved at all.
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