May 8, 2015
A reader asks, “when can a co-signer be released from the mortgage note when the borrower can show capacity to pay, can the co-signer get out within 6 mo or 12 months showing borrower has the income to pay mortgage?”
The problem with answering questions like this is fairly simple–we don’t know the language of the purchase contract. Much depends on what is contained in the purchase agreement and depending on whether or not the reader has already signed legally binding paperwork in connection with the FHA mortgage loan–that makes a big difference in the answer to the question.
For example, could a borrower and co-signer who have not legally committed to the sale negotiate with the lender to have such “ability to pay” language included in the mortgage loan agreement? Does a provision addressing this issue already exist?
But then there is the other part of this reader question that implies that perhaps what is being referenced here is not a co-signer but a co-borrower relationship? Co-signers, according to FHA home loan rules:
“…do not hold ownership interest in a property are obligated on the mortgage note and have no liability for repaying the obligation, and must complete and sign all loan documents except the security instruments”.
A co-borrower, on the other hand, has different obligations:
“Both occupying and non-occupying borrowers and coborrowers take title to the property at settlement are obligated on the mortgage note, and must sign all security instruments.”
So the rules–and the loan agreement–may be different depending on which actual legal relationship (co-borrower or co-signer) the reader has with the primary borrower. In addition to FHA loan rules, state law may also factor into cases like these, so it’s difficult to provide a one-size-fits-all answer. The best thing to do is to review the language of an existing or proposed loan agreement to see what may be possible and discuss the situation with the lender.
Do you have questions about FHA loan or refinance loan rules? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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