Mortgage Options During Divorce

Divorce Mortgage

Divorce means moving on to the next phase of one's life, but it can be complicated if the people involved own a home and have a mortgage. If you're getting divorced but still have a mortgage with your former partner, it’s important to know what your options are. This can make the process a little less daunting.

If you do get a divorce, here are some of your options:

Retain the original mortgage—When there’s a divorce, usually one spouse ends up moving out. However, from a legal perspective, that still leaves both parties on the mortgage. What this means is that if you’re the one who moves out, your credit score can take a hit if your former partner fails to make regular mortgage payments. As a result, this isn’t a good option.

One spouse retains the home and refinances

In this scenario, one spouse agrees to buy out the equity of the other spouse. Next, the spouse retaining the home refinances the mortgage in his or her name only. If you’re the spouse who will be retaining the house, you should have the ex-partner sign what’s known as a quit claim deed. This means that the person will be relinquishing any claims on the property.

One spouse retains both the home and the mortgage

It’s possible that a bank will allow the person who will remain in the house to simply assume the existing mortgage without refinancing. Before doing so, the lender will want to ensure you have the financial ability to make all the payments. If you’re going this route, you will need to sign what’s called an assumption agreement and also sign a waiver of liability for your former spouse.

Sell the house

Many couples who are divorcing decide to just sell the house. In this event, there are some things to consider. First, you’ll want to keep a record of the selling price of the home. This is relevant for the divorce proceeding when assets are being divided. Second, selling early may involve a financial penalty from the lender because you’re breaking the mortgage early. Finally, if you intend to purchase a new home, you’ll want to get pre-approved by the bank for a new mortgage before you starting looking for a place.