The sad reality is that many marriages end in divorce. Separation is heart-shattering for any couple, and it is even harder when you have to think about the division of assets and owning property as a divorcee.
Although many couples choose to sell their home and split the money in half, you and your partner may want to refinance the mortgage. This concept means that one partner will be able to maintain the property via a deed of transfer. Refinancing can help you attain lower interest rates.
While it may sound like an easy process, it comes with its fair share of challenges. Needless to say, making this decision is both financially and emotionally taxing. Additionally, some squabbles often occur over the property. These disagreements may result in a bitter legal battle.
But it doesn’t end there- you will have to overcome other challenges like retitling the property where your partner has to give up their interest so that they can transfer the property to you.
Despite the challenges, it is common to look for security in property in the aftermath of a divorce. Knowing that the property is “only yours” will give you much-needed comfort in this difficult time.
Either way, if you have been thinking about mortgage options after a divorce, here is everything that you need to know:
What Mortgage Options Do I Have After Divorce?
The mortgage options for divorced couples depend on factors like how the property was titled and financed, as well as whether you or your partner want to remain in the home.
Finally, the amount of equity that both of you have as well as your credit rating should be taken into consideration. Here are your mortgage options after divorce:
Refinance Your Mortgage
According to 2019 statistics by the Consumer Financial Protection Bureau, over 5,000 lenders reported hundreds of refinancing applications. This in itself shows that divorcing couples enjoy the benefits that this process brings.
Refinancing means that you will remove your divorced partner entirely from the mortgage loan. This process happens by canceling an existing mortgage, and if you are keeping the home, then you will have to get a new mortgage. In other words, a two-party mortgage is replaced with a single one.
Let’s break it down; if you get a divorce and opt to keep the home that is appraised at $200,000, then your partner will receive half of the value of the house in cash once the unpaid balance of the mortgage is deducted.
If the home has an unpaid balance of $100,000, so your partner is entitled to $100,000 of the home’s equity.
For you to keep the home and pay off your partner, you will apply for a new $200,000 mortgage loan. You will use $100,000 to offset the original mortgage and the remaining $100,000 to pay off your spouse. As such, you will split up on fair terms.
As refinancing is not a must, you and your partner can choose to sell the home if you cannot afford to refinance.
Removing Your Spouse from Your Mortgage after Divorce
If both you and your partner are not able to maintain your home and settle the mortgage, then you may need to sell the house. However, if you are the only one with the means to keep the property, then refinancing the mortgage is a viable option.
Remember, divorce does not absolve you from your current debts. As such, you should be financially prepared to settle any pending money matters, mortgage loan included.
If you choose to keep the home and your partner agrees, then they will need to sign a quitclaim, to show that they are no longer part of the mortgage. This is an important step as it will help you avoid any future problems.
Evaluating the Home Equity
Your share of the home depends on the following factors:
- Whether the house is a marital or premarital asset. In other words, this means whether you purchased the house as an individual or as a married couple.
- Whether there is a premarital agreement that covers the home.
- Whether you live in a state that values equitable distribution or whether you reside in a community property.
- Whether you made any contributions such as renovations or taxes during the marriage.
As home equity laws vary by state, it is important to seek legal advice from an experienced divorce attorney.
Selling the Home
Selling your home and dividing the profits amongst you and your partner is an option that you may have to consider if you choose not to refinance. All you need to do is list the property on the market at the best possible price.
However, before proceeding with the sale, you will have to pay off the existing mortgage, the broker’s fees as well as the equity line.
Although the selling process comes with these expenses, the advantage is that you will get money out of this situation. When you decide to sell, prepare yourself for a lengthy process like picking a real estate agent, setting the asking price, showing the house, and reviewing offers.
Keeping the Home
You may choose to keep your home after the divorce. This process means that you will have to buy out your partner’s share. Your reasons may include an attachment to the house or stability for both yourself and the kids.
But do not be blind to the costs that come with keeping the home. You will need to consider property taxes, maintenance costs as well as other financial responsibilities.
Regardless of the option that you choose, it is important to do your homework and gain all the necessary information so that you will be content at the end of the day. Consult an attorney as they will always protect your financial interests.
What are the Current Rates for a Divorce Mortgage?
The current rates of a divorce mortgage come with current market rates.
Other factors like mortgage discount points (for lenders who offer this) and debt to income ratio also play a part in divorce mortgage rates.
Typically, if you have a higher credit score, you will qualify for a higher mortgage amount. Refinance rates and mortgage rates are often similar. The good news is that you can always negotiate your mortgage rate with your lender.
How to Split the Property When a Mortgage is Involved
As a divorcing couple, you have a few options on how to split property when a mortgage is involved. No matter your choice, it is important to first establish the value of the property by getting an appraisal. In some cases, you can opt to get two separate appraisals as a couple.
Thereafter, you can split the property by selling it. This is one of the most common and reliable ways of splitting property during a divorce. If you do not agree to refinance, you can sell the property so that both of you can receive your fair share.
When selling the house, you will have to factor in things like taxes, real estate commission, and the net share that you will receive after the sale.
If both of you do not agree on selling, you can always choose to buy each other out if possible. This is also a form of splitting property, just under different terms. If you retain the property, you will have to get your spouse a fair share of their equity.
The Bottom Line
Divorce is a stressful situation for all parties involved. It is even more stressful when the division of assets is involved. It is emotionally and mentally draining. However, you do not want to go through your divorce blindly.
It is best to equip yourself with the right information when it comes to your mortgage loan. Ensure that you have an open mind throughout the process as you may not agree on everything with your partner, especially when it comes to keeping assets.
Seek advice from A and N Mortgage as our team comprises experts that will not only hold your hand through the process but also ensure that you end up with the best possible rates.
Be sure that you are protected every step of the way. When it’s all said and done, there is no right or wrong way to go about the mortgage process as a divorcing couple. Ideally, come up with a set of guidelines that will satisfy both parties involved.
A and N Mortgage will find a financial arrangement that will work for you. Have any questions on mortgage loans or want to get more information on our processes? Contact us with all your questions!
A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.
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