The Emotions are Real
Experiencing a divorce is an emotional roller coaster. Trying to decide to sell or refinance the marital home comes with many questions. Who will keep the home? Can they qualify for the mortgage payment?
What steps are needed to remove the former spouse? How can this transition be completed and protect your credit? Not knowing the answers to these questions can add to the stress of uncertainty for the future already experienced with finalizing a divorce. The courts will determine who will remain in the marital home if the divorcing parties have not already come to an agreement.
Seeking help from a mediator and a financial advisor can also be helpful. Be informed regarding your own credit and purchase ability prior to agreeing to take over the mortgage of the home.
Who is on the title
The listed individuals on title are not always the same individuals listed on the mortgage. Title owners can include someone who did not have qualifying income at the time of purchase. Therefore the non-income individual is not listed on the mortgage for payment. Removing title owners from the home requires paperwork, a copy of the divorce decree and signatures from all former and new owners, along with patience for the change to take place. A quit claim deed will need to be signed to remove the additional title owner. This step needs to be completed prior to refinancing.
A title company will be responsible for recording the changes and will change title of ownership. Ownership on a title when listing more than one title owner will show as one of the following; Joint tenancy, Tenancy by the entirety, and Tenancy in common.
Obligated mortgage payees are responsible for making the monthly payments on the home and all other expenses such as taxes, maintenance, and insurance. These expenses can be a big cost to take on with one income. Your Financial advisor and CPA will evaluate your debt, income and future financial goals including retirement.
If it makes sense financially to keep the home and take over the mortgage payments, one of the steps you can move forward is to ask your lender for a release of liability. The release of liability will remove the spouse who needs to be relieved from the obligation. Not all lenders will honor this request and some lenders will require the release along with the updated deed and a completed refinance.
The remaining borrower will have to qualify for the loan on their own to keep the home. To take over the mortgage the remaining borrower will have to show proof of income, debts and assets, and a qualifying credit score.
Your lender will request a copy of the divorce decree. However, the lender is not required to remove the spouse if a refinance has not taken place.
The divorce decree will cover the amount of alimony or spousal support and child support that will be paid to a former spouse.
Cash out Refinance
When looking to do a cash out refinance all the traditional factors will be considered:
- Home market value to loan value
The applying borrower may be required to give some proceeds from the cash out refinance to the former spouse. This information will need to be communicated to your loan consultant.
Divorcing couples see a reduction in income and there may be some debt that will need to be paid off. Paying off this debt may increase your credit score for the future and loosen up the demand on your pocket. When looking to use the home’s equity to pay off debt choose the debtor based on the biggest impact and longest rewards.
In some situations the cash out refinance can be used to “buyout” the former spouse. This is done when spousal support is being exchanged for the equity in the marital home which has been awarded to the other spouse.
Streamlining and Assumptions
Assuming the loan, only certain loans are eligible for assumption. Speak with your lender regarding your current loan terms and the ability to streamline or assume the loan. Assumable loans are FHA, USA, and VA loans. The original lender will have to complete the loan assumption. All loan terms stay the same including the rate, the only thing changing is the obligated mortgage payee will go from two borrowers to a single qualifying borrower.
Streamlining a FHA loan, as a refinance with no cash out, is a process that will cause very little stress for the borrower.
FHA streamlining to remove a borrower may be more complicated than other options, however, is available and can be explained in the FHA handbook 4155.1, 6.C.2d .
Light at the end of the tunnel
The need to refinance a home after divorce is common. There is a team of professionals to help you navigate through this emotional change.
As your Mortgage Broker with 9x Mortgage I specialize in helping homeowners achieve their goals and regain a sense of relief. Call me with your questions and we will build a strategic plan together.