Mortgage & Refinancing Options After a Divorce

The division of real property - the marital homestead in particular - is one of the most important decisions during a divorce. Unlike other decisions like child support and alimony, property division in a divorce is final. Even so, there are mortgage refinancing and debt consolidation options that can benefit all parties involved in divorce.

1. Sell the house and split the profits. Sometimes, a home is filled with bad memories or you want to downsize. If neither you nor your spouse wants to keep the house, consider selling it. In this situation, any remaining mortgage balance is paid off and any leftover money is divided between you and your ex.

2. Buy out your spouse. If you are court-awarded your home, your ex will deed over their ownership (Quit Claim) to you. If you owe your ex their portion of the equity, 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. Paying off the old mortgage will also release your ex from that liability.

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. Essentially, you would agree to deed over your ownership (Quit Claim) in exchange for the release of your liability on the old mortgage.

4. Maintain joint ownership and responsibility. It may not be possible for one party to buy out the other. In some cases, divorced parties will instead continue to co-own and possibly be co-obligated on a house for a specified amount of time (usually when it involves the welfare of young children). After that time, the house will either be placed for sale or one party may then be in the financial position to buy out the other.

I'm often asked: If my divorce agreement makes my ex-spouse responsible for paying our mortgage, am I off the hook?

NO, YOU'RE NOT! Ironically, it is much harder to break a mortgage loan contract than the marital one. No matter what happens to your marriage, your mortgage lender is still entitled to get paid. Since the mortgage lender has a signed contract bearing both names, it may pursue repayment of the debt from either you or your ex-spouse. The mortgage lender can do this because the divorce decree is only an agreement between you and your ex-spouse. This agreement does not release you from the legal responsibility of honoring your original agreement to repay the loan if you ex doesn't.

Other helpful hints! There are several things to keep in mind:

• Under the correct circumstances, 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 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 in the divorce agreement)
• Consider closing joint credit card accounts to block future use that might detrimentally affect each other's credit scores.

Get pre-approved before making an offer on a home. We can help you straighten out credit report issues and make sure you qualify for the least expensive program.

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