Divorce and Your Mortgage

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Divorce and Your Mortgage: Dividing Your Largest Asset and Debt

ThinkstockPhotos-466625195.jpgLearn the options available to you during divorce

Divorce is never easy, and a home can be a significant obstacle to separation. A home is usually a couples’ most valuable asset, and before they can start the next chapter in their lives, they need to consider their options for dividing this asset carefully. Liability, tax implications, credit risks—these are just a few of the things that must be addressed during a separation. At Apex Home loans, we’re committed to helping you reach your new beginning by walking you through the options for your existing mortgage, clearing the path to a new home loan, and bringing to light the many considerations you should have in mind.

Explore the 3 main options for divorcing home owners

For divorcing couples with joint ownership of a home, there are three common options for your marital home & mortgage: 

  1. Retain the home and mortgage.
  2. Sell the home and split any gains.
  3. Refinance the mortgage so that one spouse has sole ownership of the home.

Each of these options carries their own set of considerations, and the choice that’s right for you will largely depend on your situation.

Keeping your existing mortgage post-divorce

In certain situations, keeping existing financing may benefit a couple, provided they are able to communicate effectively, but generally speaking this scenario is not ideal. In this option, one spouse will keep the home, while the other may not live there but still retains co-ownership of the property. This may seem like an attractive option for couples who would like to wait to sell their home until after their children have moved out. However, here are a few complications that arise from this arrangement:

  • Coordinating upkeep, tax payments, and mortgage payments with your ex-spouse.
  • Regardless of whether a divorce decree states that one spouse is responsible for mortgage payments, both borrowers are still held liable for payments by the lender.
  • If an ex-spouse defaults of the loan, it can ruin the other’s credit.
  • Retaining an existing mortgage can present difficulties when trying to qualify for a new loan, as it likely increases your debt-to-income ratio.

Sell the home, divide any gains, and eliminate liability

It can be difficult to sell a home in which you’ve built a life and raised a family. However, selling your home is a straightforward way to resolve your joint debt and divide what’s likely your largest asset. The sale proceeds from your co-owned property will go towards paying off your mortgage, while any remaining gains can be divided amongst the separating parties. Selling your marital home will eliminate liability for your mortgage debt and prevent you from needing to coordinate payments and upkeep with your ex- spouse. Of course, this option may have limitations according to the market value of your home, how much you owe on your mortgage, and your housing options. If a home sale isn’t for you, don’t worry, there are other options that will allow you to carry on with your life in the same place.

Refinancing to keep the home and obtain sole-ownership

For individuals who want to keep their marital home and obtain sole-ownership, refinancing their existing mortgage into their own name may be an option. In this scenario, the spouse seeking ownership will generally buy out their ex-spouses equity stake in the property through the refinance. In return, the vacating party will sign a Quitclaim Deed, a legal document that relinquishes their rights to the property. Here are a few requirements to keep in mind if you are a divorcee considering this option:

  • The spouse who is keeping the home must have sufficient income and credit to qualify for the refinance. In the prior mortgage, both sources of income were taken into account, but in this scenario, only one will be.
  • In addition to having one spouse agree to relinquish rights to the home, a Deed of Secure Trust to Secure Assumption may be a desirable in this scenario. This document gives the vacating spouse the right to foreclose and take back ownership of the home should the refinancing party fail to fulfill the refinance and default on the loan.

Beyond the options: 10 top considerations you should know

We've only scratched the surface of the things you should be considering during a divorce. Take your understanding a step further by downloading our Divorcing Your Mortgage ebook below.

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