How to Refinance for a Divorce
When going through a divorce, there are many aspects of your relationship with your ex-spouse that must be considered and reconciled. If you owned a home together, one way of handling the real estate is for one person to move out of the home and the other to refinance the home into their own name and buy out any equity owned by the one who moved. Understanding how this process works and the steps that must be taken can make a complicated aspect of a painful situation a bit smoother for everyone involved.
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Instructions
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Calculate the amount of equity owned by the person who is moving. The amount of equity owed to that person may be outlined in your divorce settlement, but if it is not, subtract the outstanding balance of your current mortgage from the value of the home. This is the total equity you and your ex-spouse have in the home. Divide the total equity by two, and you will get the amount of equity owned by each of you.
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Shop mortgage rates offered by nearby banks either by contacting banks yourself or by using a mortgage broker. While using a broker may not always get you the best deal, the convenience of dealing with one person may be useful as you deal with other stressful aspects of your divorce. When choosing a mortgage to apply for, be sure to compare not just interest rates but Annual Percentage Rates. An APR incorporates closing costs to give you a true understanding of what your new mortgage will cost.
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Apply for your chosen mortgage, making sure to request a new loan amount that will cover the balance of your current mortgage and enough cash out to pay your ex-spouse for his or her portion of the equity in your home. Expert Law notes that some divorce settlements have certain dates by which the refinance must occur. If your settlement has such a date, speak with your mortgage representative to ensure that the process can be completed in time.
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Provide supporting documentation as required by the bank. You may be required to get an appraisal of your home and provide proof of your income.
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Have your ex-spouse complete a quit claim deed to transfer their ownership interest in the home to you. A quit claim deed is a quick and inexpensive way to transfer title.
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Sign loan your loan documents in your name alone once your loan has been approved by the bank.
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Wait for the funds of the loan to be disbursed. The bank will pay off your old mortgage and advance the remainder of the new loan to you directly. Once you receive the advance, pay your ex-spouse for his or her portion of the equity.
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Tips & Warnings
If you or your ex-spouse need assistance in completing the quit claim deed, ask your mortgage representative.
Always be sure to direct any legal questions regarding your divorce and settlement to a legal professional.
