Divorce and Mortgages: What are My Options?
Divorce can present you and your ex-spouse with a seemingly endless list of questions. Often times, the biggest among them is what to do with the house. Even if you amicably decide who gets to keep the house, walking away is not as easy as all that. Releasing liability to one person requires special permission from your lender and a decent amount of red tape. So what is the next best option?
Refinance the Mortgage
Refinancing is often the simplest way to transfer mortgage debt and ownership to one person. It means you and your ex-spouse will pay off the old mortgage, while one of you assumes a new loan. This requires, however, the assuming party to qualify for a mortgage individually. If you are considering refinancing, there are a few things to take note of.
Credit – A minimum credit score of 620 is typically required to qualify for a refinance. Take some time to examine how your post-divorce credit profile is shaping up. A common hinderance is disparity over who makes the monthly payment on a joint account. For example, your ex agreed to make the car payments but missed a month. This reflects poorly on your credit if the loan is in both names, despite any agreement between the two of you.
If your post-divorce credit profile is not ideal, do not despair just yet. Working closely with a lender will allow you to examine the best available options.
Income – Debt-to-income ratio is an important factor in qualifying for a mortgage. Lenders often look for a DTI of 43% or less. If your current income falls short, you may be able to turn to child support or alimony. Learn more about using child support payments as qualifying income.
Equity – Is there enough equity in your home to allow for a refinance? If you have owned your home for less than 6 months or are currently underwater on your mortgage, a refinance could be difficult. Fortunately, your lender can help sort through alternative mortgage options for those with less than perfect equity.
Mortgages and divorces are complicated enough independently. Taking on both, simultaneously, can leave you feeling a little lost. Let our mortgage experts help guide you through to closing day.