How to deal with a mortgage if you are divorcing or separating?

Divorces are not fun, no one gets married to get divorced, but they do happen.  Many married couples also own a home. What happens to the house when you divorce?  More important – what happens to the mortgage? There are a few options and most will depend on the equity in your home, your credit scores and income. The bigger question is whether or not one person wants to stay in the home. 

Most divorce decrees will state that one person will get the home and the other is no longer responsible for the mortgage payment.  Usually there is also a line about the person keeping the home needing to refinance within a certain time period.  A refinance can be the easiest solution for both parties, especially if there is enough equity to pay off anything due to  the departing spouse.  However, the person keeping the home needs to be able to qualify for the home on their own.  For some, losing the income of one spouse may mean you can't qualify for the home or maybe your credit isn't good enough for a new mortgage.  In this case you may need to wait to refinance or you may need to sell the home.

Depending on how long you have owned the home, there may not be enough equity to refinance – at least not a cash out refinance. If you have an FHA mortgage, you may be able to do a FHA streamline refinance to remove another person. However, you need to show that you have been making the payments for at least six months.  It may take some time to complete this refinance, but it can be an option.  If you have a VA loan, you can also do a streamline VA refinance (an IRRRL).  In this case, the veteran usually needs to be the one that keeps the home. If the non-veteran is staying in the home, they will have to do another type of refiance. If you bought your home before June of 2009 and still have that mortgage, you may qualify for a HARP loan – this can make it easier to refinance if you do not have a lot of equity.

What happens if you can't sell or refinance the home right away?  The divorce decree will usually have wording that allows one person to stay in the home and the other person is no longer liable for the mortgage.  This could affect your credit though. You may want to have wording put into the decree that states if there is one late payment, the home has to be listed for sale.  Just because the decree says you are not responsible for the payment, your lender will not take you off the mortgage and any late payments will be reported to your credit report.  The only way to get off the mortgage is to sell or refinance the home.

The same thing applies to those that buy a home with another person but are not married – there is not a decree and so you need to either sell or refinance the home to get your name off the mortgage.  This is something to keep in mind if you are buying a home with another person but are not married.  For some, it may make sense to put the mortgage in one person's name if they can qualify for it and put both of you on the title.  

When you are separating, talk to your lawyer about your options. You may also want to talk to your loan officer and realtor to get more information that can help your own situation.  Every situation can be a bit different, but the realty is the only way off a mortgage is to refinance or sell the home.

Leslie Vanderwerf,  NMLS ID#335509, American Mortgage & Equity Consultants, Inc, An Equal Housing Lender, NMLS#150953 - Email - Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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