To get someone off a mortgage, you have to replace or restructure the loan itself. Both borrowers remain fully liable for the entire balance until the lender agrees to release one of them, and the lender will only do that through a refinance, an assumption of a government-backed loan, or, rarely, a formal novation. A private deal between co-borrowers about who “really” pays the mortgage means nothing to the lender, and neither does a divorce decree that assigns the payments to one spouse. Removing a name from the debt and removing it from the property title are two separate steps, and you generally need to handle both.
Refinance: The Standard Route
A refinance is the cleanest way to remove a co-borrower. The person keeping the house applies for a brand-new loan in their name alone. That loan pays off the original mortgage in full, the old note is cancelled, and the departing borrower’s name is gone from the debt.
Because it is a new loan, the remaining borrower must qualify solo on their own income, credit, and assets. Expect to provide two years of federal tax returns with matching W-2s, at least 30 days of recent pay stubs, and two months of bank statements. These feed into the Uniform Residential Loan Application, Fannie Mae Form 1003.1Fannie Mae. Uniform Residential Loan Application (Form 1003)
Two numbers drive the decision. The first is your debt-to-income ratio. For manually underwritten conventional loans, Fannie Mae caps total DTI at 36%, with an exception up to 45% for borrowers who clear higher credit score and reserve thresholds. Loans run through Fannie Mae’s Desktop Underwriter can be approved with a DTI as high as 50%.2Fannie Mae. Debt-to-Income Ratios The second is your credit score. Fannie Mae requires a minimum of 620 for fixed-rate manually underwritten loans and 640 for adjustable-rate loans.3Fannie Mae. General Requirements for Credit Scores
The property also needs a fresh appraisal so the lender can confirm the loan-to-value ratio. Total closing costs on a refinance generally fall between 2% and 6% of the new loan amount, covering origination, title insurance, recording charges, and other settlement expenses.4Fannie Mae. Mortgage Refinance Calculator On a $300,000 loan that is $6,000 to $18,000, paid at closing or rolled into the new balance.
Assumption of an FHA, VA, or USDA Loan
If the existing mortgage is backed by FHA, VA, or USDA, you may be able to assume the loan instead of refinancing. An assumption transfers the existing debt to the remaining borrower at the same interest rate and terms. When rates have risen since the original loan was written, keeping the old rate can save tens of thousands of dollars over the loan’s life. Conventional loans almost never allow assumptions.
FHA assumptions require the remaining borrower to qualify with the lender, typically needing a credit score of at least 580 and a DTI ratio at or below 43%. VA assumptions carry a funding fee of 0.50% of the loan balance.5Veterans Benefits Administration. Funding Fee Schedule for VA Guaranteed Loans Assumption processing fees generally run $500 to $1,000, well below refinance closing costs.
One VA-specific trap matters if the person being removed is the veteran. Their VA entitlement stays tied to that loan until the assuming borrower, if also a veteran, substitutes their own entitlement. A non-veteran assuming a VA loan leaves the original borrower’s entitlement locked up, which can block them from using VA financing on a future home.
Novation
A novation goes further than an assumption. It formally discharges the departing borrower and creates a new contract with the remaining borrower as the sole liable party, signed by the lender, the remaining borrower, and the departing borrower. This is the strongest outcome for the person leaving, because it severs their liability completely. In practice, lenders rarely agree to novations outside of divorce situations, and even then most push toward a refinance instead.
What a Divorce Decree Does and Does Not Do
A divorce decree that orders one spouse to pay the mortgage binds the spouses. It does not bind the lender, who was not a party to the divorce. If payments are missed, the lender can and will pursue both borrowers, and there is no way to flag a credit report to explain that an ex was supposed to be paying.
Federal law does provide one narrow protection. Under the Garn-St Germain Act, a lender cannot trigger a mortgage’s due-on-sale clause when ownership transfers to a spouse or former spouse as part of a divorce decree, legal separation agreement, or related property settlement. The same protection applies when a spouse or children become an owner, or when a joint tenant dies.6Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions The point to understand: that protection covers the title transfer, not the mortgage obligation. The departing spouse can deed their ownership interest over without the lender calling the loan due, but both borrowers stay on the hook for payments until the loan is actually refinanced, assumed, or paid off.
Buying Out the Departing Person’s Equity
When one person keeps the home, they usually have to buy out the other’s share of the equity. Equity is the home’s current market value minus the remaining mortgage balance, and each co-borrower’s share depends on the ownership arrangement or the divorce settlement. If a home is worth $400,000 with a $250,000 mortgage, there is $150,000 in equity; a 50/50 split means the remaining borrower owes the departing person $75,000.
A cash-out refinance is the most common way to fund this. The remaining borrower refinances for more than the current balance and uses the excess to pay the buyout. Savings, retirement withdrawals, or other assets can also work. In divorce, the equity split is often offset against other marital property, so the cash figure may be smaller than it first appears, or may not require cash at all if other assets balance the ledger.
Get the buyout amount in writing before closing the refinance. In a divorce, the settlement agreement should spell out the exact figure or the formula for calculating it. Outside divorce, a written buyout agreement signed by both parties protects everyone if a dispute arises later.
Updating the Deed
A person removed from the loan can still be a legal co-owner if the deed is not updated, and someone removed from the title but left on the mortgage still owes the debt. Both records need to be handled.
A quitclaim deed is the simplest tool. The departing person signs over their ownership interest to the remaining owner. A warranty deed offers stronger protections because the transferor guarantees clear title, but a quitclaim is standard between co-borrowers who already know the property’s history. The deed must include the full legal description of the property, identify both parties, and be signed in front of a notary public. After signing, it gets recorded with the county recorder’s office. Recording fees vary by jurisdiction but typically fall between $25 and $200.
Some states impose a real estate transfer tax when a deed is recorded. Rates range from zero in about a third of states to as high as 3% of the property value elsewhere. Most states exempt transfers between spouses during a divorce or transfers where no money changes hands. Check your county recorder’s rules before closing so there are no surprises.
Tax Consequences
How the IRS treats the transfer depends on whether it happens in a divorce or outside one.
In a Divorce
Under IRC Section 1041, no gain or loss is recognized when property transfers between spouses or former spouses as part of a divorce. The transfer is treated as a gift for tax purposes, and the person receiving the property takes over the original owner’s cost basis.7Office of the Law Revision Counsel. 26 U.S. Code 1041 – Transfers of Property Between Spouses or Incident to Divorce No capital gains tax hits at the time of transfer. The trade-off: because the receiving spouse inherits the original purchase price as their basis, the eventual taxable gain when they sell can be larger.
To qualify, the transfer must happen within one year after the marriage ends, or be “related to the cessation of the marriage.” Transfers spelled out in a divorce decree or separation agreement satisfy that test even if they happen more than a year later.7Office of the Law Revision Counsel. 26 U.S. Code 1041 – Transfers of Property Between Spouses or Incident to Divorce
Outside a Divorce
Unmarried co-borrowers do not get the Section 1041 shield. If one person deeds their share to the other without receiving fair market value, the IRS may treat it as a gift. The annual gift tax exclusion for 2026 is $19,000 per recipient.8Internal Revenue Service. What’s New — Estate and Gift Tax A property interest worth more than that eats into the giver’s lifetime exemption and requires filing a gift tax return, though no tax is typically owed unless the lifetime exemption has been exhausted. If the departing person is being bought out at fair value, it is a sale, not a gift, and capital gains rules apply to any profit above their basis.
Credit Effects
When a refinance pays off the original mortgage, the old loan shows as “paid in full” on both borrowers’ credit reports. That is a positive mark. The new loan appears only on the remaining borrower’s report. For the departing person, losing an active installment account may cause a small, temporary dip, but the paid-in-full notation outweighs that over time.
The real danger is the gap between a divorce decree and a completed refinance. If the remaining spouse is ordered to pay but does not, late payments hit both borrowers’ credit. The only safe exit is closing the refinance or assumption promptly, and monitoring the payments until it happens.
When You Can’t Qualify to Refinance
This is where most people get stuck. The remaining borrower’s income alone does not support the debt, or their credit score falls short, and the lender says no. A divorce decree can order a spouse to refinance within a certain timeframe, but no court can force a lender to approve the loan. The realistic alternatives:
- Sell the home. If neither person can carry the mortgage solo, selling is often the cleanest solution. The sale proceeds pay off the loan, both borrowers are released, and any remaining equity gets divided.
- Request a loan assumption. If the mortgage is FHA, VA, or USDA, the remaining borrower may qualify for an assumption even if they cannot qualify for a full refinance, since standards differ and closing costs are limited to the assumption fee.
- Add a co-signer to a new refinance. A family member or new partner with strong income and credit can co-sign, helping the remaining borrower qualify. The co-signer takes on full liability for the debt.
- Keep making payments and try again later. If the remaining borrower is close to qualifying, paying down other debts or waiting for income to grow may make refinancing possible in six to twelve months. Both borrowers remain liable in the meantime.
What does not work is asking the lender to simply drop a name. Lenders have no obligation or incentive to release a co-borrower without a refinance or assumption, because doing so weakens their security. The decree binds the spouses, not the bank.