Mortgage Options in Divorce
Divorce is a complex process that often involves untangling shared assets, and one significant aspect is the marital home. The mortgage on a jointly-owned property can be a substantial financial consideration, requiring careful examination and decision-making. In this article, we will delve into strategies for taking a spouse off a jointly titled mortgage, the concept of assumable mortgages, the timeline for qualifying to refinance when relying on support payments, and the flexibility provided by contingent liability clauses.
1. REMOVING A SPOUSE FROM A JOINTLY TITLED MORTGAGE
The most common method to remove a spouse from a mortgage is through refinancing. The spouse who wishes to retain the home applies for a new mortgage in their name only. This new mortgage pays off the existing joint mortgage, effectively removing the other spouse from financial responsibility.
FINANCIAL AND LEGAL ASSISTANCE
Consulting with financial and legal professionals during divorce proceedings is crucial. A divorce agreement should explicitly outline the division of assets, including the home and mortgage. Financial and legal professionals ensure that the necessary steps are taken to facilitate the removal of a spouse from the mortgage.
2. ASSUMABLE MORTGAGES: A VIABLE ALTERNATIVE
Some mortgages are assumable, allowing a new borrower to take over the existing mortgage terms. This option is particularly valuable when one spouse wishes to keep the home (and prevailing mortgage rates are higher than the original mortgage rate). Federal Housing Administration (FHA) and Veterans Affairs (VA) loans often offer assumability. However, it’s essential to check the specific terms with the lender and ensure the assuming party meets qualification criteria.
3. TIMELINE TO QUALIFY FOR REFINANCING WITH SUPPORT PAYMENTS
For individuals relying on support payments (spousal support or child support) to qualify for income, the timeline for refinancing becomes critical. Most lenders typically require at minimum 6 months of consistent support payment history and documentation that the support payments will continue for at least another 36 months. It’s advisable to consult with a mortgage professional early in the divorce process to understand your specific timeline and requirements for refinancing. Factors such as credit score, debt-to-income ratio, and the ability to demonstrate a consistent income are key considerations.
CONCLUSION: CRAFTING A STRATEGIC APPROACH
Navigating mortgage options in divorce requires a strategic and well-thought-out approach. Careful consideration of financial implications and collaboration with legal and financial professionals is paramount. By understanding these options and seeking professional guidance, you can pave the way for a smoother transition into the next chapter of your life.
By: Elina Cannon, CDFA®, CFA®