Having Property Ownership Rights without Being on the Loan

Yes, you can have ownership interests in a property without being on the loan. To fully understand ownership and payment responsibility, let’s first talk about some terminology.

The loan that you take out to purchase or refinance a home is referred to by lending institutions as a note. This is the document you sign at closing that says who is making the payments on a property. We haven’t yet said anything about ownership of that property. The note has nothing at all to do with ownership.

On the other hand, a mortgage, which is a different document than the note, says who owns the property but says nothing about who is paying for it.

The mortgage is held as collateral against the note. If you get far enough behind on the note, the lender can take possession of the mortgage, meaning that they then have ownership rights to your property.

There can and may be different people on the note and mortgage. You can agree to be on the loan, but you or your spouse may waive your ownership rights to the property. You may want this to be the case.

For example, if either you or your spouse were in some type of legal or financial trouble, such as if you were being sued, or if you were the owner of a business that is in distress and creditors were going after your personal assets, you may consider this option.

Your real estate attorney can take care of all of this for you with documentation you sign at closing.

On the flip side of this, you may want, for whatever reason, somebody who isn’t on the loan to have ownership interest in the property. This may be some type of close relative or a trusted associate.

If you have further questions about how all of this works, I’m here to help. I’m just a call or email away.

Will I Be Able to Get Cash Back at Closing or Not?

This will depend on what type of loan you are taking and from whom you are taking it. If you are taking out a purchase loan, then you wouldn’t likely be able to take any cash out of the transaction.

There are, however, three types of refinance transactions that you could take cash from. One is a no cash-out refinance, also called a rate and term refinance. Another is a limited cash-out refinance. The last one is just called a traditional cash-out refinance transaction. A rate and term refinance is just as it sounds. You do it because you want to replace your existing mortgage with another because the terms are better.

You do it because you are getting a better interest rate, getting a lower payment, or possibly both. If you are able to pay your closing costs out of pocket, you can even keep your same loan amount. You can also choose to roll associated costs into the new mortgage, but then your loan amount would increase. A limited cash-out refinance allows you to get a limited amount of cash back. For FHA, the amount is $500, and for conventional loans, it’s up to $2,000.

How much money as a percentage of your home value you can take will vary by program. According to a 2019 HousingWire.com article, FHA, for the first time in a decade, has lowered the total amount you can borrow against your home, including cash you take. It is now 80% of the home’s value.

Conventional loans will go higher, depending on your credit scores. Please call me with your questions regarding purchase and cash-out loans, and I’d be happy to answer them.