FHA Loan Articles
FHA Streamline Refinancing Rules for Adding/Removing Borrowers
If a borrower is getting a divorce, for example, refinancing the property under a single person's name (removing the spouse) would make sense. The reverse is true for a single borrower who is refinancing and getting married-he or she might want to add the spouse to the title.
It's an important question--does the FHA allow the existing borrower to add or remove another person to the title in conjunction with an FHA streamline loan?
FHA rules do allow a borrower to add another name to the title in such cases. "Individuals may be added to the title on a streamline refinance without a credit worthiness review, and triggering the due-on-sale clause."
Why is it so easy to add another borrower in these cases? FHA streamline refinancing loans feature no cash back to the borrower. Since they are intended to lower interest rates and/or monthly payments, there is no credit check required. The applicant is not trying to borrow money against any additional equity in the home, so the process is much simpler to get the loan approved and a new name added to the title.
On the other hand. trying to remove a borrower from the title is more complicated, but possible. FHA rules state, "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;
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."
When removing a borrower from the title during a streamline loan, the rules put the burden of proof on the FHA borrower that he or she is financially able to handle the obligations of the loan-and has managed that financial burden successfully before the removal of other name(s) on the title.
FHA borrowers planning to remove someone from the title during streamline refinancing need to prepare documentation of their payments on the loan-canceled checks and other paperwork will come in handy as proof that the borrower is making the payments on his or her own.