Divorce and Mortgages: Things You Need to Know
Typically, the mortgage on your house is a big liability a divorcing couple will have to address. Divorcing your home loan isn’t easy and the divorce decree is just the beginning. It’s important to realize that in the eyes of the mortgage lender/holder you remain married and together, liable for the mortgage unless you sell the house, one of you assume the mortgage, or refinance the terms and conditions of the current mortgage.
Your divorce decree may state that the other spouse will be responsible for the mortgage but this will not remove the other spouse from the responsibility of the mortgage. When both spouses signed the original mortgage documents they agreed to be jointly responsible for repaying this loan.
Your Mortgage Options in the Divorce
Sell the House: This is obviously one of the easiest ways to remove everyone’s liability from the mortgage when getting a divorce. The proceeds from the sale can be used to pay off the existing mortgage and anything left over after closing costs will be used to meet the requirements of the divorce decree or separation agreement.
Usually, it is agreed that it’s a good idea to sell the home prior to the divorce is finalized to prevent future fights over the sales prices and proceeds. Then, neither of you will have to be concerned about making the joint house payment, maintaining the house, or paying taxes and insurances.
Refinance the Mortgage: Often times this is the most common method when one spouse wants to keep the home. The spouse who wants to keep their home refinances the mortgage to take the name of the other spouse off and then has sole title to the home.
When there is shared equity a cash out refinance option is available. Most mortgage programs allow for higher loan to values and no penalties for the equity that will leaving the home. This helps in easier qualification, lower interest rates, and less closing costs.
Mortgage Assumption: Many options arise with a few loan programs that allow for credit qualification mortgage assumption. If the mortgage you currently have is either a FHA, VA, or USDA your mortgage has an option to be assumed. Most other loan programs are not assumable but check with your lender to be sure.
If one of you are wanting to keep the home, a mortgage assumption could be a good option for checking. A mortgage assumption works very much like a refinance but instead you will assume the remaining mortgage balance plus the terms and conditions of the current mortgage. With the assumption, the other spouse will be dropped from the mortgage liability.
Do Nothing: Usually, this is the option but one many overlook. People unknowingly make this mistake when they get a divorce. In essence one spouse agrees to keep the home, but the mortgage isn’t changed after the divorce is finalized.
This is a very risky proposition due to the fact that liens placed on the home before and after the divorce are the responsibility of both spouses. If the spouse keeping the house doesn’t pay the mortgage, guess what; it will affect the credit of the other spouse. There are a numerous possibilities of bad things that could happen when you do nothing. Is that a risk you are willing to take?
Common Questions: Divorce and You Mortgage:
Can I qualify for a new home loan if my name is still on my old loan? Possibly. If you are able to qualify with both house payments then yes. But more likely, no. So
Will a Quitclaim Deed remove my name from the mortgage? The only thing a quitclaim deed does is transfers any interest in a property from one person to another, or transfer the rights to the house from one spouse to another.
Can I call my mortgage lender to have my name taken off the mortgage? No it doesn’t work that way. The home loan needs to be assumed, refinanced or you will need to sell the house.
Do we have to sell to divide the equity? Not necessarily. You can refinance the mortgage and draw out funds to pay the other spouse the divided equity.
If my name is still on the mortgage and my ex-spouse is responsible for the payment per the divorce decree, will it affect my credit if a payment is missed? This is definitely a yes. The fact that your name is still on the mortgage makes you co-responsible.
These questions are only a few of the more popular I receive. Others are of a legal nature and should be asked of your Attorney. However, if you have mortgage related questions regarding a divorce please feel free to contact me.
Assisting individuals with Divorce and Mortgages is one on my specialties and I have assisted many just like you with navigating the home loan process during a divorce. There are too many to answer here, particularly surrounding your home and the mortgage. I am available to assist and answer you questions. If you are going to consider refinance as an option:
Mortgage Divorce Refinance: Documents Needed to Start
- Your Divorce Decree or Legal Separation Agreement
- W2’s for past 2 years
- Current pay stubs for past 30 days employment
- Bank statements for the most recent 2 months (all pages)
- A Retirement Account Statement (if applicable)
- Your Mortgage Statement
- Cop of Driver’s License
- Copy of Social Security Card (maybe)
- Federal tax returns for past 2 years (all pages all schedules)
- Homeowners Insurance information