While transferring interest in a home to refinance a loan is often straightforward, it’s important to investigate the situation to avoid potential issues.
Q: I own one-third of a property left by my mother’s estate. My sister wishes to transfer her third to me, as she has no interest in the property and has not contributed to its upkeep in any way. She and my brother are jointly responsible for the mortgage, although she has not paid anything towards the monthly mortgage payments.
My intent is to refinance the mortgage from its 10 percent interest rate to a current market rate. My credit score is good (760). What is the best way for her to transfer her interest to me?
A: While it would be easy for us to say that you should have your sister transfer title to you immediately using a deed of some sort, we think you should talk to a mortgage lender or mortgage broker first. We’d like to see you investigate the market for your loan first before you exchange title with your sister.
Many lenders get nervous when there are transfers of title that close to the time when one of the owners wants to refinance title. You’ll research your lenders and their loan products, find the right lender for you, then you will discuss with that lender that three of you own the property but you want to refinance the existing loan and that one of the owners will drop off title. The lender can then guide you in making sure that you take the right steps in getting your sister off title and not mess up any issues with the loan you want to take out.
In most situations, if a co-owner is not getting paid to give up his or her right to an ownership piece in a property, there won’t be an issue. You will need to have an attorney draw up a deed that transfers your sister’s interest to the two of you and then file any other paperwork that goes along with the deed.
Some municipalities may require proof of payment of utilities and other services. Others may require that you obtain certifications of compliance from various governmental offices. And, still others may require you to pay a transfer fee to record the deed.
You’ll have to see which, if any, of these fees and costs apply to you where the home is located. You also may want to check whether the change in ownership will trigger any increases in your real estate taxes.
In some places, when you transfer ownership of a home, the local taxing body may have the right to re-determine the value of the home for real estate tax purposes. While it might be unusual in your situation given that two of the three owners will remain on title, it’s still worth finding out. We’d rather you have all the information now than be surprised down the road.