Top 3 Things to Know About Your Mortgage During a Divorce

Divorce is never easy, especially when you own property with your spouse. What to do with the house, and by extension, your mortgage, is a looming question that requires careful consideration and planning. Without a well-though-out plan, you may put at risk your credit, the inheritance rights of your property (title vesting), or your chances of getting loan approval for new financing. Here are three things you must know about your mortgage while going through a divorce:

1. If you have joint accounts and debts, maintaining your credit can be a challenge. Despite what a divorce agreement may indicate about who is responsible for mortgage payments, in the eyes of a lender, both parties who took out the loan are responsible for payments. For this reason, should you or your ex-spouse miss a payment, both credit scores will be affected. This same principle rings true for other lines of credit as well—here are some suggestions that can help you maintain your credit during a divorce:
   1. Communicate with your spouse regarding the payment of bills to avoid assumptions about who’s responsible for payments.
   2. Transfer all debts to the responsible party by calling the creditors of your accounts.
   3. Close as many joint accounts as possible.
   4. Keep joint bills current. Even missed payments made years after a divorce can remain on your credit report if you are still associated with an account.

2. Divorce judgments can affect who will inherit your property in the event of your passing. If you and your spouse hold title as Tenancy by the Entirety, meaning that you own the property together a single legal entity, a divorce judgment can default your title to Tenancy in Common with no right to survivorship. If you and your spouse intend to keep any existing financing in place, this default can be problematic as it could have far-reaching implications for who inherits the property. If you are refinancing your home, discuss your options for holding title with a mortgage banker.

3. When you file your divorce agreement, it has a direct affect on your ability to complete a new mortgage application. Mortgage lenders require that divorcing couples have a finalized divorce settlement agreement before completing and closing a new loan application. This is a universal requirement in the mortgage world because many variables can change during divorce proceedings, including items that have a direct impact on an individual’s debt or income (i.e. child support or alimony). Since this is a major factor in getting new financing, it’s important to discuss the timeline of your divorce with a mortgage professional to establish a game plan and set expectations for a smooth closing.

While I recognize this is a very difficult time, please know that I am here if you have any questions about how your divorce could affect your mortgage. These three important pieces of knowledge will help you embark on the path to the next chapter in your life. However, if you would like more detailed information on the complex mortgage requirements for divorcing individuals, I invite you to download our Documents Needed During a Divorce mortgage checklist.

Please be aware: by refinancing your existing mortgage, your total finance charges may be higher over the life of the loan.