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Understanding Your Mortgage Options During a Divorce


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If you find yourself in the unfortunate situation of a divorce, working with attorneys to split up assets can be a strenuous experience. Often times, a home is a couple's most valuable financial asset. Determining whether you intend to remain in the home or move requires some internal reflection and discovering available options. It is an important step to understanding which option is in your best interest, what factors should be considered to make your decision, and how your decision ultimately affects your options to buy a new house after a divorce. 

If you're awarded the house

Consider whether keeping the house is the right choice for your current circumstance. Here are few budgetary items to consider while making the decision:

  • Mortgage payments

  • Utility expenses

  • Maintenance and repairs

  • HOA Fees

Consider your family needs and if downsizing or temporarily renting are additional options.

Did you know that if your spouse received marital interest in the home, which means the house was purchased after you were married regardless of who's name it's under, you may need to actually pay your spouse a percentage of the equity in the home if the home has gained equity? Check with an attorney to find out. 

Often times, a spouse has emotional ties to their home, it's a source of pride—a place where you raised children and created many special memories. If you do decide to stay in your home, which is completely understandable, you generally have two financing options to come up with the funds to pay your ex-spouse, if needed: 

  1. Refinance your home to get cash out OR

  2. Obtain a home equity loan

Both options require contacting a mortgage professional who can help navigate you through the various solutions. 

If you're not awarded the house

It's important to know that even though a divorce decree may have awarded your home to your ex-spouse, you are still financially responsible for the debt. The best practice is to consult with your attorney to understand your obligation. You may hear or read the term 'quitclaim deed,' which is a legal document used to transfer interest in property. Though this transfers your interest in the property, you still need to make arrangements to remove your name from the debt, and most importantly, protect your credit rating. 

Another option is to talk with the servicer of your mortgage loan to discuss options. You could perform a "qualifying name delete assumption" to fully remove your obligation for the loan; however, certain conditions will likely need to be met, and an approval from the lender will be required. 

Planning to buy a new house post-divorce

Depending on your financial circumstances, you may be looking to purchase a new home to re-start your life after a divorce. Here's a few documents and items you'll need after you've applied for a home mortgage:

  1. A copy of your final divorce decree  

  2. Your lender will need to verify that child support or alimony has been paid for at least three months and likely to continue for three years (Note: Alimony, child-support, or separate maintenance income need not be revealed if you do not choose to have it be considered for pre-qualification purposes).

If you want to purchase a home before your divorce becomes final, which you may be allowed to do, speak to your attorney first. You may want to wait if you are in a community-property state, as your spouse may have a marital interest in the home. Keep in mind that if you owned a home with your spouse, you will have to qualify for the new loan with the full debt from the existing home.  

Divorce can be a trying time for you and your family. Being informed of your options is the best way to take out the uncertainty of what could happen with your home during this difficult time. 

SWBC Mortgage Corporation does not provide legal advice. You should seek advice based upon your own particular circumstances from a licensed divorce attorney. This material is for information purposes. Consider your own financial circumstances carefully before making a decision and consult your tax, legal, or estate planning professional.

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