Divorcing? Ironically, it is much harder to end a mortgage loan contract than the marital contract. Even if the divorce agreement makes the mortgage your ex-spouse’s responsibility, you are still legally responsible for this debt! The divorce decree is only a legal agreement between you and your ex-spouse, not with your mortgage company. In the mortgage lender’s eyes, you are still on the mortgage and still responsible for the mortgage payments until the mortgage is paid off. That is why understanding the different options and finding the best option for you and your ex-spouse to deal with divorce mortgage refinancing for the marital homestead is so important.
Knowing what options you have in regards to your marital home will eliminate a lot of stress during divorce.
There are essentially 4 choices:
Choice #1: Sell the house, pay off the joint mortgage and split the proceeds. Some circumstances may make this the best option, especially if neither spouse can afford the mortgage payment on their own. It also may be that both spouses want a fresh start in homes of their own to start new memories separately, not to linger in the memories of the old home. You and your ex-spouse can take your share of the proceeds and buy your own new homes.
Choice #2. Buy out your spouse. If you are court-awarded your home, your ex-spouse will be required to deed over their ownership (Quit Claim) of the home to you. If both spouses are on the loan, you will need to refinance the mortgage to remove your ex-spouse from the mortgage debt. If there is equity in the home, you may need to pay your ex-spouse a certain amount for their share of the home. You may have to refinance the home with a new mortgage that is large enough to both satisfy your old joint debt and buy out your ex-spouse.
Choice #3. Let your spouse buy you out. If your ex-spouse is awarded the house, it’s equally vital to have your name removed from the mortgage by having your ex-spouse refinance the home. If your ex is late in making mortgage payments on a property that you are still jointly obligated on, it will affect your credit and hurt your ability to purchase a house of your own. And in the event your ex-spouse defaulted on the mortgage debt, the lender could come after you to pay the debt! Essentially, you would agree to deed over your ownership (Quit Claim) and your spouse would refinance the joint debt to remove you from the mortgage.
Choice #4. Maintain joint ownership. For many various reasons, this is not a possibility for all people who are divorcing. However, sometimes, perhaps due to financial reasons or due to the need to maintain the home for the children, divorcing couples may decide to keep joint ownership of the home with both parties sharing the debt. Usually, after circumstances have changed such as improved finances or minor children reaching adulthood, the spouses will choose one of the first three options.
The best advice of all
It is not in your best interest to legally obligate yourself to refinance your home once your divorce is finalized unless you are sure you qualify for the refinance in your name alone. If you (or your ex-spouse) are unable to qualify for the refinance, you may find yourself paying another round of legal fees in search of a satisfactory legal solution. It is a best practice to get pre-qualified or pre-approved before finalizing your divorce agreement. We don’t charge for this service and are happy to help you any way we can.
Other helpful hints:
• With the right documentation, alimony and child support income can help you to qualify for a home loan.
• Any alimony and child support obligations for which you are responsible for paying are considered monthly debts and will lower the amount for which you qualify.
• Joint obligations on your credit report, like credit cards and car payments, will affect how much you qualify for unless the divorce agreement clearly indicates your ex-spouse is responsible for the monthly payment. If it’s not too late, it’s advisable to reference account numbers for those obligations in the divorce agreement.
• Consider closing joint credit card accounts to block future use that might detrimentally affect each other’s credit scores
Call me at (603) 471-9300. I’ve been sensitively handling mortgages through divorce for more than two decades.
