If you took out a loan with someone else, your co-borrower's name is also on the loan document whether or not she lives in the place with you. When the time comes to get her name off the loan, it's not as easy as you may think. The lender is happy having both names on the loan since it has two salaries to garnish and more than one bank account to attach if you fail to pay. Sometimes it is possible for you to assume the loan, but not often. Usually, you'll have to get new financing under your name only.
Refinancing a loan puts your name as the sole borrower but doesn't adjust the original cost basis of the property. Your capital gains is based on the original purchase price not the refinance.
The Complexity of Home Loans
When you buy a house, especially a first home, it is very probable you will need to borrow money to help pay for it. This is especially true in popular urban areas where an average house carries a price tag of over $1 million dollars, like in San Francisco. You may scrape together the down payment, but you'll need a loan to cover the balance.
In order to get the loan, you must have good credit and income that the lender considers sufficiently high for you to make the monthly loan payments. If your income falls short, you can get a co-borrower such as a partner or spouse who intends to live in the house with you, or a friend or family member with good credit who is willing to do you a favor and co-sign the loan.
But if you divorce or the co-signer wants her name off the loan to free her up to make other investments, how do you go about removing her name?
Try for an Assumption of the Loan
A loan assumption is by far the easiest procedure available to get one name off a home loan. But it's also pretty difficult in that most bank loans are not assumable. If you have a VA or FHA loan, it may be possible. Otherwise, you can always ask, but don't count on it.
If you can assume the loan, you'll sign papers taking over full responsibility for the loan. The bank or lender may require you to show good credit and financial information too. The average amount of time it takes to complete a loan assumption is between 45 and 90 days. Note that not every assumption removes liability from the co-borrower or co-signer. The assumption agreement must contain a novation clause removing liability for that to happen.
Refinance the Loan
The other way to get a name off a home loan is to refinance the loan. You'll need to show good enough credit to obtain a loan in your own name. If your income is strong and the outstanding loan amount diminished, this is possible. Talk to your own bank, but check with other banks as well. If you do qualify for a loan, you may be able to get a better rate than the one you had.
Essentially, when you refinance, you pay off the original loan with the new loan proceeds. That takes the other person's name off the loan. You then have a loan in your own name.