Getting a divorce can be confusing and overwhelming. After all, it’s not something we do every day. Keeping the house after divorce can only exacerbate the confusion even more because it raises many questions… How do we transfer ownership? Who gets the house? When we do transfer ownership, how do we remove the non-owning spouse from the mortgage? Today, we’re going to address that last question and walk you through options to remove your ex’s name from the mortgage!
Assume the Loan
Assuming the loan means that mortgage terms stay the same, but your spouse’s name is taken off it. This frees them from financial liability. While this can be a great option if you have good rates, most lenders won’t allow it. In the event that they’re considering it, they’ll require you to provide information about your income to ensure you’ll be able to make payments on your own. You should also know that if you go this route, you may face fees that could offset the benefit of keeping your current terms in the first place.
To see if this is a viable option for you, reach out to your lender, fill them in on your situation, ask if you can apply to assume the mortgage, and clarify any potential fees involved.
Refinance the Loan
If one party is keeping the house after divorce, the most common way to remove the other party’s name from the mortgage is to refinance. However, doing so can be difficult depending on income. If the lender doesn’t believe the home-owning spouse makes enough money to keep up with mortgage payments alone, they won’t approve the application to refinance. A pretty good general rule is that your income needs to be 3x more than your living expenses (i.e. mortgage payment, etc.). This is a common formula lenders use.
In some cases, they may allow refinancing if the applicant can obtain a co-signer, but that isn’t always possible either. To increase your chances of being approved for refinancing, button up loose financial ends and make sure your credit score is strong before applying. You should also be able to show the lender that you’re the sole owner of the property. If they know you’re the only one who owns the home, they’ll have less trouble taking it away if you miss payments. This reduces their perceived risk and will increase your chances of being approved.
Sell the Home
In some situations, refinancing and assuming the loan are not possible. It could be for a multitude of reasons including bad credit or high debt to income ratio. Either way, if you can’t get approved and don’t have a co-signer, it may be time to face the music. Your only other options are to give your spouse the house (if they can obtain refinancing) in exchange for other assets or sell it altogether. If you can sell the house, the mortgage will go away entirely (assuming you sell for more than you owe and pay it off). Doing so while married may allow you to reap higher capital gains exemptions.
If you’re already past that point, that’s okay too. Either way, it’s important to understand that selling might be for the best. You probably can’t afford to keep the house if a lender doesn’t approve you. While this can be tough to hear emotionally, it’s better to know now than to miss payments and ruin your credit down the road. Selling quickly is key to being able to move on with your lives with the least amount of financial damage. Putting your home on the market is an option; however, selling that way could take months or years. If you want to unload your home quickly and walk away with the cash to start new, reach out to us today. We buy houses within a matter of weeks and may be able to help!
Regardless of how you go about it, if you don’t share any ownership in your home after the divorce, you need to clear yourself of financial liability. Failure to do so could bite you later. If your ex misses payments, you’ll be liable to catch them up or watch your credit score drop. Not taking this small step to remove yourself from the mortgage now could result in your inability to borrow money for anything down the line. Just because your divorce settlement agreement states that you don’t owe anything for the house anymore doesn’t mean the lender can’t come after you!