Can You Refinance Your Home Mortgage When Divorced?
Divorces cause chaos in all areas of people's lives, sometimes for years. Many couples buy a house after they're married: If the marriage fails, the couple must decide how to handle the home's ownership, mortgage and equity. Sometimes they choose to sell the home, and each partner finds a new place to live; other times, one partner keeps the home to live in. If you kept your home through the divorce and now want to refinance, there are additional items to consider.
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Divorce Decree
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Divorce decrees often outline who keeps the home and who's responsible for the debt on the home. The judge may order that one person can keep the home but give a deadline of when the home must be taken out of the other spouse's name. The judge may even order a certain amount of the equity be provided to the other spouse as well. Anytime you're divorced, expect the mortgage company to ask for a copy of the divorce decree.
Removing the Ex-Spouse
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During the refinance, you may want to remove the other person from the home. It isn't sufficient to simply refinance into a new mortgage. While you can simply do this, it only relieves your former spouse from the obligation of paying the debt, not from owning the home. A quit claim deed is required to remove the ex-spouse from the home. This form is available in most states and is the instrument used to put someone onto or take someone off of the title of a home. If you refinance the loan into your own name, you may want to quit-claim your former spouse off of the title at the same time. This document requires your spouse's signature, however.
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Equity Payoff
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Each lender treats court-ordered equity payoff differently. If the court orders you to provide a certain percentage or dollar amount of equity to your ex-spouse, the lender may call this a rate and term refinance, or a cash-out refinance. It depends on the lender; you should ask how it's treated. A rate and term refinance usually provides lower interest rates and easier qualification requirements than a cash-out refinance.
Alimony and Child Support
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The mortgage application specifically asks if you're ordered to pay alimony or child support. If you're ordered to pay it, it must be included in the debts along with your other loans. If you have less than 10 months remaining, the lender may exclude the alimony or child support. If you receive alimony or child support, you may use this income to qualify for your refinance. The lender ensures you have a history of receiving it and proof it will continue for three full years after the loan closes. If it only lasts for two years and 11 months, the lender may not allow you to qualify with it.
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