Removing a cosigner requires a full refinance.
A cosigner who signs any promissory note is as legally and financially responsible as the primary borrower for the repayment of the loan. This means that if the primary borrower begins to default on the loan, the cosigner's credit report will be negatively impacted as well. Cosigners are more rare on mortgage loans, but it does happen. If you have a cosigner on your mortgage loan, and he wants to be removed, there is only one option: refinance your home.
Instructions
1. Pull a copy of your credit report. To qualify for the refinance, in the lender's eyes your credit alone must be suitable for repayment. You can get a free copy of your report at the AnnualCreditReport Web site. You should also pay for your FICO score. This three-digit number ranges from 300 to 850. Scores over 720 are excellent; scores below 600 are poor.
2. Calculate your debt-to-income ratio (DIR). This is the number lenders use to determine how much of your income you'll be spending on expenses. Remember that you can only use your income for the refinance, not the cosigner's income. To calculate, divide the sum of all monthly payments (including your mortgage payment) by your total gross income. Most lenders want to see your DIR below 45 percent.
3. Begin researching refinance companies if you have a FICO score over 680 and a DIR at 45 percent or below. Your loan will likely be too expensive if you do not have adequate scores. Look first at banks and credit unions, because these institutions have the most competitive programs.
4. Submit refinance applications to no more than three mortgage lenders. Excessive applications could negatively impact your credit score. Make sure to give all loan officers your existing mortgage paperwork, your income documents, your homeowners insurance policy and your property tax bill. This will help with pre-approval.
5. Compare all offers side by side. Choose the lowest-cost program. Compare your final choice to your existing mortgage loan. You do not want to put yourself in a more precarious financial position. Only sign the new loan (removing the cosigner) if you are confident in your ability to repay it.
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