Divorce and Your Home
The marital home may be one of the larger assets when getting divorced and can cause the most controversy. There are usually a lot of questions, so speaking to a Divorce Mortgage Specialist early in the process can help give peace of mind and set you down the best path for your unique scenario. Below are seven frequently asked questions on divorce and your home from Brett Leschinsky, Divorce Mortgage Specialist in Minnesota.
Divorce and Your Home
CAN I KEEP THE HOUSE?
In general, the spouse who can afford to keep making the mortgage payments after the divorce is the one who retains the home. If neither can afford it, the house is typically sold. If there are children involved and keeping them in the home is a priority, spousal maintenance can be provided to the spouse staying in the home, depending on incomes of course. Sometimes it’s obvious what needs to be done with the house, but many times it’s not. If your household income is going down and your expenses are going up (spousal maintenance, child support, paying for your own utilities, etc.) does it really make financial sense to stay in the house? It’s important that you be diligent in understanding what your income and debts will be after the divorce.
HOW IS THE EQUITY IN OUR HOME HANDLED IF WE ARE BOTH ENTITLED TO A SHARE OF IT?
If home equity needs to be borrowed to pay off some or all of the marital obligation, there are 2 ways to do it. You can refinance your first mortgage and take equity out so you have a new, larger 1st mortgage, Or, you can obtain a new 2nd mortgage for the amount you need. There are many factors that go into which of these two options is the best for your situation. What the value of your house is, what your credit score is, what percentage of your home’s value lenders will lend up to, etc are all factors in this discussion. Typically when taking cash out on a refinance of a 1st mortgage, there’s about a quarter percent hit to the interest rate. However, if the proper wording is entered into your divorce decree, this hit can be avoided. Contact Brett to discuss this further if this is your scenario.
MY SPOUSE IS KEEPING THE HOUSE…HOW CAN I GET MY NAME OFF THAT LOAN?
There are 3 possible ways to get your name off a loan.
1. Qualifying Name Delete Assumption – This process keeps the existing loan terms in place and, assuming your spouse qualifies for the payments on their own, can remove your name from the loan.
2. Refinance the house into your spouse’s name only.
3. Sell the house.
A common misconception is that a Quit Claim Deed can eliminate your responsibility to pay the loan back. It does not. A Quit Claim Deed only gives your ownership interest in the property to your ex-spouse…your responsibility to the bank remains until your name is removed from the loan through one of the 3 ways listed above.
CAN I STILL PURCHASE A HOME EVEN IF I CAN’T GET MY NAME OFF OF THE OLD LOAN?
If the right verbiage is written into the divorce decree, it is possible to qualify to purchase a new home without using the mortgage debt of the old loan. However, it is always preferred to remove your name from the old loan whenever possible. Mainly because if your ex-spouse misses any payments to the mortgage your name is still on, your credit will be affected negatively.
CAN I BUY A NEW HOUSE BEFORE I GET DIVORCED?
Possibly, but there are a few things to be aware of. First, you would have to qualify with the full debt for your current home since there is no divorce decree assigning ownership of that debt. Second, your spouse would have a marital interest in your new property because you are still married. Once the divorce is final, you would need your ex-spouse to sign a Quit Claim Deed granting you their interest in your new property. This is not typically a problem as you would also need to sign a Quit Claim Deed granting them your interest in the marital home if they are keeping it.
CAN I USE SPOUSAL MAINTENANCE AND/OR CHILD SUPPORT AS QUALIFYING INCOME TO BUY A HOUSE?
Yes, however it must have been received consistently for a certain amount of time (depending on which loan type you are using) and it must also be documented to continue for a minimum of 3 years after purchasing the house.
WHY DO I NEED A MORTGAGE PROFESSIONAL WHO SPECIALIZES IN DIVORCE TRANSACTIONS?
Mortgage transactions surrounding divorce are different. Many of the underwriting guidelines are different. Very few Mortgage Loan Officers know and understand these differences because they just don’t come across them enough. If you or anyone you know is going through a divorce and owns a home, they should take 15 minutes and talk to a Divorce Mortgage Specialist as early in the divorce process as possible. This will give you the accurate information you need to make good decisions during and after your divorce.
The best way to navigate your options is to talk to a Divorce Mortgage Specialist who can help determine the right process for your situation.
Contact Brett, Divorce Mortgage Specialist at (612) 590-7896 for information regarding divorce and your home.
Bridget Leschinsky is a CDC Certified Divorce Coach®
