If you’ve decided to end your marriage, you may be dealing with a lot of stress and emotional hardship. To top it off, if you owned a home with your ex-partner, figuring out how your divorce affects your mortgage can be one more complicated detail to settle in the chaos. One of the most difficult things during divorce proceedings is dealing with splitting assets and other financial details.
When both parties agree to work together to take the best steps toward settling everything, it eases the mental and financial burden. Being knowledgeable and prepared to deal with some of the homeownership aspects that can be impacted by a divorce can help take some of the stress and frustration off of your plate, and get you moving on with your life sooner.
Here’s what to know when it comes to your shared mortgage during a divorce.
Who Keeps the Marital Home?
First off, you should settle who is going to keep the marital home. Set aside emotional differences and view this as a business transaction. Are children involved? Does one of you make enough to keep the house on your own?
If neither of you can come to an agreement about who gets to stay in the home, the decision will end up in court. They will go through everything and decide how to fairly divide your assets — and this could take a very, very long time. In this situation, it’s ideal to come to an amicable decision about who keeps the house.
[Related: In a Hurry? Tips to Close Your Mortgage Quickly]
Separate the Names on Your Mortgage and Title
The next step is to separate the names on your mortgage and on the title of the home.
When one person decides to keep the home, and the other party’s name is still on the mortgage and title, they are still legally responsible for the home and payments associated with the home. Essentially, even if you’re legally divorced, a lender can still hold both parties accountable if both names are still on the documents.
Release of Liability
To release someone’s name from the mortgage, you can ask your lender for a “release of liability,” which is a document that releases a borrower from their obligation to pay back the loan. Keep in mind that your lender does not have to offer this.
Another option if you want to separate the names on the mortgage is to refinance the existing mortgage into one name. This will release one party from the responsibility of the mortgage payments and allow the remaining spouse to qualify for a new loan using their own income and assets.
If the person who wants to keep the home doesn’t qualify for a refinance without the other party’s income, they have a few options. They can either:
- Come to an agreement with the other person to keep them on the mortgage and continue to make payments. This often happens if the divorce is on good terms and the individual keeping the home has children. This route requires a lot of trust, since if either party quits making payments on time, everyone’s credit is impacted.
- Ask for alimony as financial assistance. With this option, there is no guarantee that the other party will pay, which could potentially damage the initial party’s credit and make them late on payments, putting them at risk of losing the home.
- Decide to forfeit keeping them home and sell it instead.
[Related: Guide to Mortgage Recasting]
A cash-out refinance is another way to remove an individual from the mortgage by splitting the financial assets of the home.
This method replaces your existing mortgage with a new loan at a higher amount than what you were paying. The difference is then “cashed out” to you, allowing you to pay your ex-spouse for their share of the marital home’s equity and keep your name as the sole name on the mortgage.
[Related: Seven Questions to Ask Yourself Before Refinancing]
Quit Claim Deed
In addition to separating names off of the mortgage, you also need to remove your ex-spouse’s name from the title of the property.
Thankfully, this just takes a bit of paperwork.
When one person signs and files a quit claim deed, it transfers their half of the property ownership to the other person on the title. This is required if you’re refinancing the home as well.
[Related: Supporting Documents for Loan Approval]
Sell the Home
If you can’t come to an agreement or qualify for a refinance of the martial house without your ex-spouse’s income, you might have to sell the home.
Selling the home can allow you to easily split the proceeds between both parties, divide the assets, and make a “clean break,” moving forward with your separate lives.
[Related: Seven Reasons Homes in Hot Markets Don’t Sell Right Away]
Contact Seattle Mortgage Planners Today
Are you going through a divorce or other major life change and need to know how it will impact your mortgage? Are you looking to refinance your existing mortgage, or in the market to purchase a home for the first time?
Seattle Mortgage Planners has the experience and skills to help you through every aspect of your homeowner journey. Contact us today for a consultation.