A divorce is a demanding, often emotionally fraught experience. Besides the clear toll it can take on a person, mentally, it can also be complicated when it comes to questions of finances and assets. An important part of the divorce process is deciding who owns what, who is liable for what, and how a couple will handle what they own after they are no longer together.
One of the most common points of confusion and contention is the home. Who owns a house when it has two names on the mortgage agreement? Who is responsible for paying for the mortgage? Whose credit is affected if the mortgage goes into default?
Divorce and mortgage questions require expert help to untangle. Having a divorce attorney on your side is invaluable, but mortgage companies like A and N Mortgage can be just as essential. Here, we’re going to look at the mortgage questions that divorce can raise, your options, and some advice on handling new home loans, such as refinancing the mortgage.
Divorce And Mortgage Questions
Both mortgages and marriages are legal agreements that can affect each other in unexpected ways. As such, here are a few frequently asked divorce and mortgage questions:
↠ If you jointly own a home, what happens with the home when you get divorced?
Your divorce decree will spell out what happens with the home.
↠ Can I have a name removed from an existing mortgage?
The property will need to be sold, the loan can be assumed, or you can go through the process of refinancing the mortgage, all of which requires approval from the bank. You cannot remove your own name from a loan without both your ex-spouse and the bank agreeing to it, either.
↠ Should I keep the mortgage in my name even if I don’t keep the house?
While legal, this does put you at risk. If your soon-to-be ex-spouse misses payments, you are the one held responsible and your credit could be at risk.
↠ Are mortgages in only one person’s name a marital debt?
Unless you are separated, a mortgage under one person’s name is a marital debt while married.
↠ Can I give up the title and mortgage on a home only in my name?
Through a divorce mortgage transfer and deed transfer, this is possible, though it’s partially up to the mortgage provider.
↠ Can I give up or assume ownership rights without transferring the mortgage fully?
With a quitclaim, either individual can give up their ownership interest. This can be done without taking the name off a mortgage, but this does come with risks.
↠ How can I find out if a new loan has been taken on a home?
Consult with your county clerk to see any new mortgages or loans on a property.
↠ Do I have recourse if my name is still on a mortgage?
The divorce order can be clarified or changed to ensure that either party have to refinance the mortgage or indemnify their ex-spouse for it.
Mortgage Options After A Divorce
Hopefully, the answers above give you some immediate idea of what is or isn’t possible. However, you should also look into the different options after your divorce. From assuming the mortgage after divorce to refinancing the mortgage in your name only, each option has its own legal and financial implications worth considering.
The solutions that tend to offer a cleaner break tend to be the harder ones to attain, but here is an overview of what you could potentially do:
↠ Refinancing The Mortgage
With enough equity, credit, and income and the agreement of the spouse, a home loan can be refinanced in one person’s name, alone. However, this includes going through the process of filing applications and providing paperwork to prove that you can make mortgage payments by yourself.
You may also have to consider “cashing out” your spouse, giving them 50% of the existing equity in cash. A cash-out refinance can do this, but a personal loan may be necessary if you’re dealing with low home equity in divorce.
Following a refinance, you should ensure your ex-spouse signs a quitclaim deed before a notary, removing any property ownership claim they may have.
↠ Assuming Mortgage After Divorce
You can also opt for the process of a loan assumption. This involves informing a lender that you’re taking sole responsibility for the loan and removing your ex-spouse from it. This does have some potential drawbacks. For instance, the terms of the loan will stay the same. So, if two people had a loan approved on two incomes, payments may become difficult to manage.
If your ex is assuming the mortgage, then ensure you receive a release of liability from the loan, meaning that the bank cannot come to you if you your ex fails to repay the loan. Overall, the greatest weakness of assuming a mortgage after a divorce is that lenders don’t often agree to it. Even if they do, they may require the same type of evidence that you can make payments that a loan would require.
Furthermore, there may be some costs associated with a loan assumption, often as much as one percent of the loan amount, plus administrative fees that can go as high as $500.
↠ Selling The Home
A more common solution and a simpler one is to resell the home and split the money with your partner. Of course, this means giving up the property and can be difficult if the market isn’t currently good for those selling the home. If you can’t get an offer to match or exceed the mortgage’s worth, your lender may come after you for the deficiency, but this isn’t an option for them in some states.
Short sales can help quickly sell a home to sever your ties with your ex-spouse sooner, but this won’t cover all of the loans on the property. If you can’t manage a traditional house sale and have to rely on a short sale or foreclosure, it will affect you and your ex-partner’s credit score.
Splitting The House: The Buyout Option
It’s one of the most common questions facing divorcing couples: Who gets the house? That sounds like a simple question. It’s not. Here’s why:
Splitting the house typically requires a buy-out. In other words, if a husband decides to keep the house, then he’ll have to pay his ex-wife her full share of the home. If the couple decides on a 50-50 split, then the husband must pay 50 percent of the equity. That means figuring out how much the house is worth, and how much equity the husband and wife currently have in the home.
To put that in real numbers, let’s say a couple owns a house valued at $500,000. They still owe $300,000, which leaves them with $200,000 of equity. Split $200,000 in half, and each party has a $100,000 interest in the house. In order to buy out the departing spouse, the party who wants to keep the home must then come up with $100,000 on the spot. For many people, that’s a tall order, which makes a simple buy-out far from appealing.
Home Loan Advice
Refinancing the mortgage after a divorce means going through the application process all over again, this time with a new set of circumstances. The process is no less complicated than ever, so it pays to ensure that you’re as prepared as possible.
Factor Your Earnings Including Child Support And Alimony
Applying for a loan with a single name on it may mean that you’re not able to qualify for as much as you did when you were applying as a couple. There are a range of factors that can increase how much you could apply for. For instance, child support and alimony can be accounted for in your earnings, especially if you can factor how long you will be receiving them for.
Prepare A Deposit And Escrow Payments
Don’t forget that most loan programs are also going to require a deposit on the loan. What they are depends on the lender and the loan, but a good rule of thumb is to have two months’ worth of payments, interest, taxes, and insurance costs at the ready. This should help cover not only the deposit, but also to set up an escrow account that pays taxes and insurance alongside the loan.
Know How Credit Affects Your Loan
Just as you’re applying using one set of financial circumstances, you’re also applying with one credit report. This can work in your favor or to your detriment. If your credit is better than your ex-spouse’s, you could actually have more flexibility with loan terms and structure. Of course, if your credit is worse, it can limit your home loan options
Establish Your Credit If Necessary
Before applying, it’s recommended you take as much time as you need to establish your credit if you haven’t already. Taking out a credit card or two and using them responsibly, with a plan to pay them off fully each month, is one of the most reliable ways to build credit.
Check Your Credit Report For False Records
It’s also recommended that you look into your annual free credit report. There may be inaccurate records on your report that could be lowering your credit score. For instance, loans taken out in your name that you never applied for. If you remove these, it could immediately improve your credit score. This will increase your chances of having a new home loan approved by the bank.
Calculate Loan Payments To Find Out If They Work For You
While different lenders have different standards, it’s recommended you look closely at the monthly debt payments to see whether or not you’re likely to be approved. If the repayments amount to less than 43% of your pre-tax income, then the odds are in your favor.
Consult A Professional Mortgage Banker At A and N Mortgage
To ensure the best possible divorce mortgage transfer or refinance, you need the cooperation of your ex-spouse, as well as a divorce attorney who can ensure that the divorce order clarifies any confusion.
However, a mortgage banker or broker can also help ensure the best outcome possible, seeing the option that makes the most financial sense for you. A and N Mortgage can help you find the solution that sees all parties involved are satisfied.
A and N Mortgage Services Inc, provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.