When an FHA borrower wants to refinance an FHA mortgage using FHA streamline refinancing, there are sometimes questions about adding or removing a borrower from the title.
This may be needed for several reasons. If a borrower is getting a divorce, for example, refinancing the property under a single name would make sense. The same goes for a single borrower who is refinancing in connection with getting married–he or she might want to add the spouse to the title.
When does the FHA allow the borrower to add or remove another person to the title during an FHA streamline loan?
According to the FHA official site, adding a borrower is simple. “Individuals may be added to the title on a streamline refinance without a credit worthiness review, and triggering the due-on-sale clause.” Because an FHA streamline refinancing loan has no cash back to the borrower and is used to lower interest rates and/or monthly payments, there is no credit check required. The borrower adds a name to the title–and the accompanying financial obligation to that person–with no additional steps other than what’s needed to add the name.
Removing a borrower from the title is a bit more complex. According to FHA rules, “Individuals may be deleted from the title on a streamline refinance only under the circumstances described in Handbook 4155.1, 6.C.2.d:
a) When an assumption of a mortgage not containing a due-on-sale clause occurred more than six months previously and the assumptor can document that he or she has made the mortgage payments during this interim period; or
b) Following an assumption of a mortgage in which the transferability restriction (due-on-sale clause) was not triggered, such as in a property transfer resulting from a divorce decree or by devise or descent, and the assumption or quit-claim of interest occurred more than six months previously and the remaining owner-occupant can demonstrate that he or she has made the mortgage payments during this time.”
As you can see, removing a borrower puts the burden of proof on the FHA borrower that he or she is financially able to handle the obligations of the loan–and has done so prior to the removal of the other name(s) on the title. FHA borrowers planning to request this procedure should plan ahead and be able to show documentation of their payments on the loan–canceled checks and other paperwork will come in handy here.