Can You Do a Quitclaim on a FHA Mortgage?

The Federal Housing Administration insures mortgages through various programs for low- and moderate-income borrowers, those with credit challenges and government or private entities seeking to house people of modest means. FHA programs are generally designed for owner-occupants and borrowers who have passed a credit review. There are certain instances in which a change of ownership on an FHA property may occur through the quitclaim process.

The Basics

FHA insurance programs were created by Congress in 1934 as a means of reviving the housing market in the wake of the Great Depression. FHA insures mortgages originated by approved lenders, reimbursing their losses in the event of homeowner default.

A quitclaim is a type of deed that legally transfers an interest in real estate property from one entity to another. By signing a quitclaim deed, a grantor conveys her share of ownership, or title, to a grantee. It is generally used a quick means of adding or removing someone from title, without involving the mortgagee or other encumbrances.

Marriage and Divorce

A quitclaim deed is ideal for transfers involving parties that know each other or have close associations, according to QuitClaim.com. It can be used on an FHA-insured property to add a new spouse to title after marriage or to delete a former spouse from title upon divorce. The quitclaim can also change ownership vesting. For instance, a property with title vested as a sole ownership prior to marriage may change to community property by way of the quitclaim process.

Streamline Refinance

FHA's streamline refinance is the easiest form of refinancing an FHA-insured mortgage. It involves minimal qualifying documentation and does not require a property appraisal. The streamline refinance can only be done on an existing FHA-insured loan.

Individuals may be added to title during a streamline refinance without a creditworthiness review. They may be removed from title following a loan assumption that involved a quitclaim more than six months prior to refinancing. FHA assumption allows individuals to obtain ownership and assume responsibility for the loan liability, with certain restrictions. The new owner must prove he has been making the mortgage payment for at least six months in order to release the prior borrower from the loan obligation.

Considerations

Although a quitclaim is the fastest, easiest and least expensive way to transfer title, it does not guarantee that title is clear of liens, other owners or encumbrances. Quitclaims are best suited for title transfer between close associates, such as family members and investment partners and for conveying ownership to a trust, according to QuitClaim.com. Warranty or grant deeds provide more protection and ensure a clear title. In general, FHA requires the latter deed type to release its lien on refinances other than the streamline and sales transactions.

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