“What if I want to refinance, but I’m not on the current loan?”
This question comes up a few times every year with us. The situation is usually one in which the parent purchased a home for their adult child, and now they want the adult child to take over the mortgage payments and free up that capacity on their credit.
This situation is complicated because there are two options to consider:
1. You can do a standard purchase contract that includes a down payment, closing costs, etc.
2. You can refinance the loan.
Now, in order for the refinance to even be an option, the parent would have to essentially do a warranty deed to transfer 100% ownership of the property to the adult child who lives there. Because there’s no continuity of obligation with Fannie Mae any longer, they will allow that loan to be refinanced right away.
Here’s the catch: The former owner of the property (the parent, in my example) won’t be able to get any equity out of the property with this type of structure. This is a rate-and-term refinance only. Now, I’ve had clients who have done a rate-and-term refinance and some renovations at that time, as well, so there’s definitely some flexibility there, but every person’s circumstances are different.
If you’ve found yourself in this situation and would like to talk about your options, reach out to me. Let’s talk through it so that you can have an exit strategy and you’re aware of the pros and cons of each option for your situation.