Divorce And Your Mortgage: Common Questions, Answered
If you’ve ever been through a divorce, then you know what a stressful situation it is for everyone involved. And, on top of being emotionally and mentally draining, divorce can present many financial challenges.
The more financial assets you’ve accumulated with your former spouse, the harder it will be to untangle them. And the two of you may not always agree about which person gets to keep certain assets, like your home.
This dispute often leaves people asking all sorts of divorce and mortgage questions. Read on to uncover the answers to some of the divorce and mortgage questions most commonly asked.
How Does Divorce Affect My Mortgage?
You may have decided to end your marriage commitment. But divorce in and of itself doesn’t change the commitment you and your spouse made to your mortgage.
If both individuals applied for the mortgage, then both of you are still responsible for the monthly payments. But when a couple splits up and there’s a mortgage, you have a few options.
Usually, one of these three scenarios happen:
- The home is sold to a third party. Many people find that it’s just easier to sell the home and split the proceeds. Both parties get to make a clean break, and there’s no negotiation over who gets to keep the house.
- One spouse buys the home. Another option is a buyout, which allows one spouse to buy the home from the other at a mutually agreed-upon value. The buyer will have to refinance the mortgage to have the other party’s name removed.
- One spouse moves out. Sometimes, couples will agree to maintain their original mortgage to allow the children to stay home with one parent, while the other moves out. This agreement should only be entered if you trust your former spouse to continue making payments.
There’s no one right answer to what should happen with your mortgage after a divorce. The goal is that both parties agree on the best next steps. Keep in mind that if you’re looking to refinance your home loan as part of a buyout or want to move into a new home of your own, you’ll need to apply for a mortgage.
What Issues Need To Be Resolved With The Mortgage?
When you’re going through a divorce, you’ll first need to decide whether to keep or sell your home.
If one person wants to keep the home and the other party doesn’t, it may make sense for one spouse to buy out the other. However, you’ll want to make sure you can afford the mortgage payments on your own.
You’ll also need to agree on how the equity in your home will be divided. The equity can be used as a bargaining chip if one person wants the home while the other person wants to avoid any future financial obligations.
No matter what you decide, it’s important to work with lawyers and financial advisers who can assist you and your former spouse in making these decisions. These advisers offer a neutral point of view and will keep the best interests of both parties in mind.
What If An Agreement Can’t Be Reached?
Acrimonious divorces can make it incredibly difficult to resolve financial matters. If you and your former spouse are unable to reach an agreement, you’ll have to rely on the court system to do it for you.
This can be a more difficult route to take. Both parties will have to go to court, present their case and then allow the court to determine how to fairly divide the assets.
This process can be incredibly expensive since both parties will need a lawyer. Any marital assets you’ve accumulated can easily be drained by a lengthy legal process. That’s why it’s always ideal to try to reach an agreement outside court if you can.
How Can You And Your Children Keep Your Home?
When couples with children start dividing marital property, one spouse may want to keep the home and live there with the kids.
Assuming a mortgage in a divorce is an option, but it’s only viable if that person can afford the mortgage. If they can, they may be able to assume the mortgage or buy the home from their former spouse. That individual’s income, their credit history, debt-to-income ratio and the division of equity accumulated in the real estate will all be taken into consideration.
Let’s look at some other common scenarios that occur in divorcing couples with children.
Your Former Spouse Earns Enough Income To Qualify For A Refinance On Their Own
Let’s say that Spouse A wants to keep the marital home and earns enough income on their own to qualify for a refinance. In this situation, the couple may agree that Spouse A should apply for a new mortgage loan in their name only.
Spouse A may want to encourage Spouse B to agree to leave enough equity in the home for a 20% down payment. In exchange, Spouse B won’t be required to make any additional mortgage payments on the other person’s behalf.
From there, both spouses can split any equity in excess of the 20% down payment if they pursue a cash-out refinance. From there, Spouse B will sign a quitclaim deed relinquishing any claim on the title.
Spouse A now owns the property in their name alone and is responsible for making the monthly payments on their new mortgage. It will now be up to that person to determine what type of mortgage best suits their needs and gives them the ability to make timely payments.
A Home Loan Expert can help you figure out which loan is right for your needs and your financial situation as you refinance. Take time to explore your options so you can make sure you’re choosing the right loan for your budget.
Your Former Spouse Can’t Qualify For A Refinance
But what if Spouse A wants to keep the marital home but can’t qualify for the refinance on their own? It’s always more difficult when the spouse who’s moving out earns a significantly higher income than the person who wishes to stay in the home.
In this situation, Spouse A may want to seek financial assistance in the form of alimony. They can also ask for child support if there are children in the marriage.
However, this type of settlement comes with risks. Even if Spouse B agrees to pay alimony or child support, it’s impossible to guarantee they will actually make these payments. If that person doesn’t follow through on the agreement, Spouse A may end up unable to make their mortgage payments.
In this situation, Spouse A will see their credit score take a significant hit, and they could be at risk of losing their home. That’s because even though Spouse B is responsible for the alimony payments, Spouse A is the person listed as the mortgage borrower.
So if you’re unable to afford the mortgage payments on your own, you should think long and hard about whether you want to rely on alimony payments to get you through. It may be better to move into a more affordable home than to remain dependent on your former spouse.
If you’re thinking about searching for a new home, be sure to explore your financing options before you start looking. This way, you’ll know how much you can afford to spend on a new home, and you can narrow down your home search.
Additional Divorce And Mortgage FAQs
Divorce raises many personal and financial questions, so it’s always best to consult an attorney or financial adviser on these issues. Next up are some other questions you may have about your mortgage and refinancing your house after a divorce.
Can’t I just release my former spouse from the mortgage?
If you and your former spouse are in agreement that you’ll keep the mortgage, it would be nice if you could just release them from the commitment and move on. Unfortunately, it’s not that simple.
Any changes made to a mortgage must be approved by the mortgage holder. While it’s possible that your lender will agree to a change, a new mortgage will need to be originated in most cases.
What is a quitclaim deed?
A quitclaim deed is a very fast way to remove one borrower from the deed. Once the quitclaim deed is signed and recorded, the spouse who was removed no longer has any responsibility for the home. Also, the borrower keeping the mortgage doesn’t receive any type of protections with this deed.
These types of changes do require the approval of your lender, however.
Do we have to tell the mortgage lender that we’re separating?
When you’re going through a difficult divorce, you probably would prefer to tell as few people about it as possible. But for everyone’s protection, your lender must be informed so that your mortgage situation can be resolved.
This is true even if you’re going through a very amicable divorce where both parties are in agreement about what should happen with the marital home.
What if my former spouse refuses to negotiate over the mortgage?
Divorce can be very challenging, and sometimes one spouse becomes determined to inflict as much damage as possible on the other. Unfortunately, they often do this by withholding financial assets or just outright refusing to negotiate over finances.
If you find yourself in this situation, you should seek the advice of an attorney immediately. You may need to cease communications with your former spouse and let your lawyer step in.
The Bottom Line
Going through a divorce is difficult, and it’s even more complicated when you have a mortgage. Many couples will sell the house and split the proceeds. Another popular option includes one party refinancing the original mortgage into a new mortgage in their name. If you’re ready to be responsible for paying the mortgage on your own, apply online and start the refinance approval process today.