Going through a divorce is emotionally challenging and logistically complex. When you and your spouse split ways, you will need to decide what to do with the house. This difficult decision has huge financial and emotional implications. In most cases, it is likely that one partner will remain in the home and refinance the mortgage.
First, we will discuss the possibilities on the table. Then, we will review some important questions and considerations that can help guide you in your decision. Finally, we will help you figure out the optimal timing for refinancing after a divorce.
What Are Your Options?
- Refinance the mortgage. In this scenario, one partner keeps the house, and the other moves out. Refinancing allows for the removal of the departing person’s name from the mortgage. The remaining financial burden is exclusively the responsibility of the partner who stays in the home.
- Sell the property. In many situations, neither partner may wish to remain in the house. Alternately, they may both disagree over who should get the house for too long. Either way, the result can be the sale of the property. Each partner receives a percentage of the sale price for the home based on previous agreements.
- Continue to cohabit. Finally, there are some scenarios where divorced couples may continue to live together in the same house for a number of years. In such situations, the couple may put off the refinancing until they physically separate (financial stability is a common reason why divorced spouses sometimes end up staying together in a home).
Questions to Ask and Things to Consider
Here are some things you should think about when deciding how to approach your options for refinancing your mortgage or selling your home during a divorce.
- Who wants to remain in the home the most?
- Who is most likely to be able to afford to keep up with the mortgage payments now and over the years to come?
- Is either party able to afford the home on their own?
- If you buy out your spouse’s share in the home, how much will that cost? If they buy out your share, how much will you receive?
- What will you qualify for when you refinance based on your individual credit score and income?
- Taking into account potentially higher rates, will you still be able to afford your mortgage?
If you are refinancing to remove your ex’s name from the mortgage, you also need to remember to have your ex removed from the title. This is a simple matter of giving your ex a quitclaim deed to sign. Although you can take care of this step on your own, the same is not true for getting your ex partner’s name off the mortgage. For that, refinancing is necessary.
You might be wondering whether there is anything to stop you from simply splitting ways without refinancing and removing the non-residing ex’s name from the mortgage. When that person goes to apply for another mortgage, the home they are no longer inhabiting will still show up as one of their debts, adversely impacting their DTI ratio. Plus, if for whatever reason the inhabiting person falls behind on their mortgage, the ex who is no longer living with them will have a drop in their own credit score. To ensure that doesn’t happen, it is important to refinance and remove that person’s name from the mortgage all together.
When is the Best Time to Refinance When Getting a Divorce?
One more question you might have about refinancing while divorcing is what the best time frame is for doing so. Should you do it before finalizing their divorce or afterward?
Generally, the best advice is to refinance before the divorce and not after. There are two good reasons for this recommendation:
- You will have an easier time getting approved for the refinance since you are still “married” on paper.
- Exes who are still spouses on paper are more likely to work together to complete the process effectively. Once the divorce is final, either or both may want to get as far away as possible, and may feel no compelling motivation to work with the other to deal with the house.
There may be exceptions; it all comes down to your individual scenario.
Need Help Refinancing After a Divorce?
Lake Mortgage Company can walk you through your options and help you quickly and easily refinance your mortgage during a divorce. We also can give you recommendations for the future. If you will be purchasing a new home (either because you are selling or your partner is buying you out), we can help you find a new home loan. To get started now, please call (219) 756-5626. We work with customers in Merrillville and throughout Indiana and Illinois. We are here to make the process as simple and smooth as possible so you can move forward and embrace the next steps in your life.