As you’re going through a divorce and dividing up your assets, finances and personal belongings, you may be wondering what to do about your home. It’s likely that both of your names are on the mortgage and that you’re both responsible for the debt. One route you may want to consider (for a number of reasons) is to refinance.
Find out how refinancing during a divorce could be helpful and what alternatives you could take if refinancing isn’t in the cards right now.
While there is no “right” time to refinance during divorce, there are periods in which it can be more difficult.
In most cases, it would be ideal to apply for a mortgage refinance before you file for divorce. You would be able to list your marital status as married, and it could be easier to just remove one of you from the loan afterwards.
Refinancing your mortgage after you file for divorce or after your divorce is finalized can be a little more complicated. You may need to provide more documentation about your individual monthly debts (like alimony or child support) to calculate your debt-to-income (DTI) ratios to determine if you and/or your spouse qualify for a refinance. This may take a longer time than you want to wait.
Of course, this all depends on your specific situation, so you may want to speak with your spouse, a lawyer, your lender and/or a financial advisor to really understand all the nuances of the process.
There are many reasons you may want to refinance your mortgage, but during a divorce, it could be a good starting point to completely separate your financial obligations and assets. Here are some common reasons you may want to refinance during this time.
In the case that you’re keeping the property, you could use the opportunity to refinance to remove your spouse from the mortgage. This would release them from this financial obligation and make you the sole person responsible for the mortgage. Keep in mind that doing this would not automatically remove them from the deed to the property.
If you decide that you don’t want to keep the house, you could remove yourself from the mortgage. This would release you from this debt and ensure that your credit score won’t be impacted if your spouse were to miss a mortgage payment.
If there’s enough equity built up in your home, you may be able to apply for a cash-out refinance to obtain funds at closing. This could help you split this asset or, if either of you are keeping the home, the money could be used to buy out the other person’s share of ownership.
Refinancing may not work for every couple going through divorce. Here are some alternative options:
When neither of you want the home, you can choose to sell it and split the money from the sale. This could be beneficial if you’ve built up a lot of equity as you can use the proceeds to buy a new home that may fit you better as you start this new chapter of your life.
While not as common for divorced couples, you may choose to co-own the property where the both of you are still responsible for this debt. Whether you decide to still live in the property together or want to rent it out for another source of income, you likely want to make this official in a separate contract or in your divorce papers.
You don’t have to refinance to remove a person from the mortgage. You may be able to work with your lender to get a mortgage assumption which would allow you or your spouse to take over or “assume” the mortgage payments and release the other from this debt. It’s important to note that your lender will need to sign off on this option and will review your finances to determine if you qualify for a mortgage assumption.
Refinancing costs money and you may find that you can’t afford it right now. If possible, it may be best to wait until you save enough or find a different option to decide what to do with your real estate asset. However, remember that interest rates may rise, or home values may decrease during this waiting period.
Divorce doesn’t have to be difficult when it comes to your mortgage. There are options for you and your partner to consider and choose from. Whether you decide to refinance or move forward with another option, it could help to speak with a professional to determine what will work for you and your partner.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.