Divorce Mortgage Options
When a couple divorce, negotiating who gets the house depends on a number of different factors. Some of these factors include whether both spouses hold the mortgage and whether each of the spouses can afford the mortgage payment on their individual incomes. If the couple have children, that can be a deciding factor in who keeps the marital home.
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Selling
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One option for divorcing couples is to sell the house. Once the house sells, they pay off the balance on the original mortgage loan and sign off on the deed. If the deed does not list both spouses as deed holders, then only the listed spouse needs to sign off on the deed to the house. If there is equity in the house, the couple can decide how to split any proceeds from the sale remaining after they pay off the original mortgage and any fees, such as Realtor's fees, related to the sale of the house.
Refinancing
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Refinancing the original mortgage is necessary when a couple decide that one spouse will keep the house. The person keeping the house refinances the mortgage so the loan is in his name only. If there is equity in the home, typically the spouse refinancing the home has to pay the other spouse an agreed upon percentage of the total amount of equity in the home. Once the refinance is complete, the person keeping the home becomes the only one who is legally and financially responsible for the mortgage loan and any other expenses related to the home.
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Mortgage Assumption
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A mortgage assumption is when one spouse takes over the current mortgage loan. Not all mortgages are assumable, and the lender must approve the assumption before it is final. Getting an assumption approved is similar to taking out a new loan. The assuming spouse must provide the lender with financial documentation, such as tax returns and bank statements, proving that she can afford the mortgage payment on her income alone. Credit scores and current outstanding debt are also a factor when assuming a mortgage. Once one spouse assumes the mortgage, the lender releases the other spouse from financial liability.
Warnings
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If only one spouse is on the mortgage loan and she moves out of the marital home, she is the one who is legally responsible for making the mortgage payment even if she no longer lives there. If the spouses are co-borrowers on the loan and one moves out, they are both legally responsible for making the mortgage payment until the other spouse refinances, assumes the mortgage or they sell the house.
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