For more than a decade, there have been over 300,000 divorces annually across the US.
Of course, there are many logistics to figure out. Financial planning. Maybe custody. All those legal documents to sign. And then there’s what to do with the mortgage during divorce.
A home is often a family’s biggest asset, which means dividing it up can get tricky.
Luckily, those going through a divorce have at least a few possible options.
To start, it is important to sit down and go over the details of your mortgage, potentially with an attorney.
Who is on the loan?
Some couples have a joint loan, which means both partners have their names listed on the mortgage.
In other cases, one spouse might have an individual loan, with the other spouse listed separately on the title.
Get clear on who exactly is named on the mortgage.
Who is responsible for the mortgage moving forward?
With a joint loan, you’re equally responsible for repayment. That’s because you entered the loan as co-borrowers, meaning you both agreed to pay the lender back. If you have a joint loan and finalize a divorce without changing anything about the mortgage, you’ll both still be on the hook for repayment.
If one spouse or the other has an individual loan, the borrower named on the mortgage is solely responsible for repayment. That’s because individuals listed on the property’s title are legal owners, but not liable to repay the mortgage.
If you have a co-signer - maybe one set of in-laws or a family friend - you’ll need to speak with them about their stake in the loan.
Now, you can start exploring concrete options for moving forward.
Every situation is different. And what’s right for one divorcing couple might not be right for another.
Luckily, there are typically a few options you can explore:
If neither one of you wants to stay in the home, or if neither can afford it independently, it might make the most sense to sell.
Keep in mind that you’ll probably need to do a deep clean, maybe complete some repairs, and potentially even stage the home if you go this route.
But, if you’re able to sell the home for more than you owe on it, the parties listed on the mortgage might just walk away with some cash.
If you owe more than the appraised value or the eventual sales price, though, whoever is listed on the mortgage will need to pay the difference.
Either way, selling does offer an opportunity for both parties to move on — literally, financially, and emotionally.
If you plan to sell, you’ll probably want to research current market conditions, explore a reasonable timeline, and speak with an experienced real estate professional before moving forward.
When managing a mortgage during divorce, if one spouse would like to keep the home, you might have the option of refinancing.
Refinancing: Replacing your current mortgage with a new one.
In simple terms, one spouse would get a new mortgage to replace the original mortgage. In a joint mortgage, this would essentially remove the borrower’s former partner from the home loan.
If your spouse has an individual loan and you’re listed on the title, you may still be able to refinance in your name. You’ll want to speak with a mortgage pro for more details.
Refinances aren’t always an option, though. Some lenders have what’s called a “seasoning period,” usually 6-12 months after the loan goes into effect. Depending on your lender, you may not be able to refinance during the seasoning period.
The refinancing spouse will also need to qualify for the home loan on their own. So, their income, credit score, and employment history will need to prove they can afford the mortgage.
And keep in mind that refinances typically come with a new interest rate, which could help or hurt the refinancing spouse, depending on the new loan. Refinances also come with closing costs.
If refinancing sounds like a good option, you’ll want to speak with a mortgage professional. They can help determine if one spouse might qualify.
If you don’t want to sell or refinance, you might have another option if your mortgage is assumable.
Assumable mortgage: A home loan that is essentially transferred from one borrower (or group of borrowers) to another.
Basically, one spouse would be taking the mortgage over independently and their ex would be released from liability. Note that the existing debt, interest rate, and payment schedule transfer over, too. This could help or hurt the spouse assuming the mortgage, depending on the features of the loan.
Assuming a mortgage can be quicker and less complex than refinancing, and it typically comes with lower closing costs.
Not all mortgages are assumable, though. You’ll need to check with your lender for approval. The assuming spouse will also need to prove they can afford the home independently via credit score and income history.
Some divorcing couples choose not to change anything related to their mortgage during divorce. In other words, they continue to co-own the home.
Some people go this route for the sake of their children’s stability. Others might rent the home out to collect and split rent money. Some might just want to wait out less-than-ideal market conditions.
If you’re considering co-owning even after divorce, keep in mind that you’ll still be financially tied to your former partner. In other words, if they stop paying, you could be affected.
Remember: no two divorces, and no two home loans, are the same.
That’s why it’s so important to speak with professionals who can help you figure out what to do with your mortgage during divorce.
You might consider working with a divorce attorney, financial planner, and mortgage professional to determine the best path forward.
Divorce is rarely easy. But understanding a few different options for your mortgage can help ease some of the burden.
If you can have a sit down with all the parties involved, come up with a general plan, and run it by a professional, you’re well on your way to effectively managing your mortgage during divorce.
And don’t forget: we’re here to help if you’re looking to get pre-qualified on your own mortgage after divorce.
The information contained in this blog post is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should consult with your own lawyer for legal advice