Divorce And Mortgage: Your Options In Separation
Divorce with mortgage is a common challenge
Divorce is far from easy.
Making the process more difficult are decisions about your co-ownership and mortgage.
You are not alone in this challenge. According to the Centers for Disease Control and Prevention (CDC), nearly 800,000 couples divorced in 2017, the last year for which data are available.
Approximately 60 percent of the US population owns a home, which means the majority of divorcing couples face difficult housing decisions.
There are proven options for the mortgage that will help both parties move on after the split. These options depend on factors such as: Home equity, Credit scores, and whether a party wants to stay in the house.
Almost any situation can be resolved using either of these options.
Confirm your new plan (September 30, 2021)
Refinancing the mortgage
The cleanest solution might be to refinance the mortgage and just leave one person’s name on the loan.
After the refinance is complete, only the person whose name is on the mortgage is responsible for the monthly payments.
You could then deduct the name of the person who is not paying the mortgage from the title of the house.
If necessary, use a Cash-out refinancing to pay out the portion of the equity to which the departing person is entitled.
This is the simplest solution, but it only works under certain conditions. There are at least a few issues that can keep you from completing a refinance.
Income. You may not have the income to pay the mortgage yourself. You find that the lender is not approving the loan for a single income household. If you can’t increase your income quickly, you may have to sell the home.
Credit. Perhaps your credit score has gone down since you took out your original mortgage loan. You may no longer qualify for a refinance. You can have a low credit score with a. overcome fast rescore, but success with this method is far from certain. Often times, the only “solution” to poor creditworthiness is to restore credit history over a long period of time.
Equity capital. If you recently bought or bought the home when the values were higher, your home may not have enough equity to fund itself. For example, if you only have a few percent equity, refinancing could be too expensive or not available at all. Fortunately, there are mortgage options that can help you deal with a lack of equity.
Removing the spouse with low home equity
Certain types of refinancing allow you to remove a borrower despite the home’s low equity base.
FMERR Refinance to Remove a Spouse
the Freddie Mac Enhanced Relief Refinancing, or FMERR, may work if you bought your home after October 1, 2017 and the mortgage is at least 15 months old. This loan is only available to borrowers on a Freddie Mac loan, but a similar program is available if your loan is owned by Fannie Mae.
The remaining spouse must re-qualify for the loan to prove they can make the payments without the help of a co-borrower. A minimum score of 620 is required.
You cannot withdraw money with this loan. It would be purely a tool to remove a spouse from the loan.
Start your FMERR authorization request here. (09/30/2021)
FHA streamlines refinancing
If you bought or last refinanced your home with an FHA loan, you can refinance a borrower.
However, the remaining spouse must provide evidence that they have made all of the mortgage payment in the previous six months. This option is best for those who have been apart for at least that long.
However, it is not ideal when you need to finalize your mortgage situation right away.
VA refinance loans during divorce
You can a. use VA streamline refinancing removing a spouse after a divorce. Usually the veteran has to stay on the credit.
If the departing person is a veteran, the remaining spouse would have to refinance into a different type of loan.
However, if the remaining spouse is eligible for a VA loan, they can opt for a VA disbursement loan. This option allows homeowners to borrow up to 100 percent of the current value of their home.
This feature could allow the remaining spouse to pay off the outgoing spouse’s home assets under the divorce decree.
There is no lack of refinancing options in the event of divorce. However, if for some reason you are unable to refinance, you need to find another solution.
Confirm your new plan (September 30, 2021)
Payment to the spouse for his share of the property
In many states, the court will split the equity built up in the house between the two divorced partners.
There are a number of tools you can use to raise money to “buy out” the spouse so you can keep the house.
When there is equity in the house, consider a Home loan. You don’t have to refinance your first mortgage. It’s simply a second mortgage added to the existing loan. Closing costs are low and these loans are quicker and easier to obtain than a primary mortgage.
When there is little or no equity in the house, one option is a personal loan. Personal loans do not depend on your home for approval, but on your previous creditworthiness and income situation.
The loan amounts are up to $ 50,000, but in some cases up to $ 100,000. Approval comes in days, not weeks, and the house is not placed as collateral.
All in all, a personal loan could be a quick way to raise cash to pay off the outgoing spouse’s portion of equity.
Sell the house
Selling the house is another option. You and your spouse would agree to put the house on the market and then split the profits on the sale.
You would still have to determine how mortgage payments would be handled before the sale was completed, but this is a short term rather than a long term challenge.
Again, this solution may not work in a divorce case.
Perhaps you and your spouse have children and don’t want to force them to move out of the house they grew up in. Or the real estate market in your area is weak and you fear losing money selling it.
Equity is important when selling. It usually costs between seven and ten percent of the value of your home to sell. This sum is made up of brokerage fees, taxes, title insurance, and other fees.
In other words, you may have to sell a home for $ 220,000 for profitability when you owe two hundred thousand.
Otherwise, you may be required to present a check when the sale is completed.
If you can’t sell your home or refinance your mortgage loan, there is another option. But it’s not without its risks.
Keep the house and the mortgage
If you are unwilling or unable to sell or refinance your home, your other choice is to leave the home and mortgage intact.
Both parties remain on the loan and are responsible for the payment.
This requires specific wording in the divorce settlement about who will be making the mortgage payments each month. Your agreement may state that your ex-partner will pay the mortgage even though you and your children live in the house.
The agreement may stipulate that you and your ex-partner will pay half the mortgage each month.
Remember that this situation can lead to payment defaults if your ex-partner is unwilling or unable to comply with the divorce decree.
For example, let’s say your ex-spouse is supposed to pay the mortgage every month, but your name stays on the loan. If your ex-partner misses a payment, your three-digit FICO credit score could drop as much as 100 points.
If your name remains on the loan, your lender will consider you equally for the monthly payments.
Your mortgage holder won’t discharge late payments, even with a divorce decree stating your ex is responsible.
For this reason, a joint mortgage after a divorce can only work well for a consensual divorce.
Protect your funds
There are certain steps you can take to protect yourself.
The divorce papers could state that your ex-spouse is living in the home and requesting refinancing at some point. When the refinancing is complete, your name will be removed from the mortgage. Your divorce contract may say your ex will keep making his payments until the refinance is officially closed and you are no longer responsible for the mortgage.
You can add extra protection for yourself by including a clause in your divorce settlement. It would say that if your ex doesn’t complete the refinance during a certain period of time, the house you once lived in will be put up for sale.
Remember, however, that no matter what your divorce papers say, you can never fully protect yourself from your ex-partner’s actions when it comes to a mortgage. Even if the divorce papers include penalties, there is no guarantee that your ex will continue to make those payments.
Divorced couples who want the safest option for all parties may want to sell the home or refinance the mortgage.
What are the current divorce mortgage rates?
Divorce is complicated, but it doesn’t have to mean the end of your home ownership goals. Today’s low refinance rates make it easier to take on the entire mortgage payment for a divorce partner who wants to stay in the house.
Check today’s tariffs and get a trusted assessment of all of your options. Then make an informed decision about how to proceed.
Confirm your new plan (September 30, 2021)