There’s no need to sugarcoat things – divorce can be messy. It ranks as one of the most stressful events a person can go through, affecting every aspect of daily life. If you’re in the midst of a divorce and have a mortgage, that mortgage will play a significant role in the proceedings. While the following tips won’t prevent the emotional stress that comes with the breakup of a marriage, we hope they will help to highlight helpful options and offer some empowerment through education.
Value the home to determine equity
Home equity is the appraised value of the home minus the home’s liabilities. Selling the house is the surest way to determine equity, but usually isn’t possible before a divorce. So, the best option is to get an appraisal from a professional. This will let you know how much equity the home holds. Couples may then split the equity or use it to pay off mutual debts.
Compensate the departing spouse
If the couple has agreed to a 50/50 split, the partner who keeps the house will have to buy out the one who leaves the home. In many cases, a cash-out refinance can provide the money needed to compensate the ex for their share of the equity. For this to work, however, two things have to happen: 1) The remaining spouse must be able to qualify for the loan on their own; and 2) The home must have the necessary equity. If these conditions aren’t possible, an experienced loan originator(Opens in a new window) can evaluate other scenarios, such as a home equity loan or a home equity line of credit (HELOC), but keep in mind that individual circumstances will determine available options.
Remove the ex from the mortgage
It’s important to understand that if your name is on a mortgage, you are legally responsible for it. If you have left a residence, leaving your name on a mortgage for a home that is no longer your own can potentially negatively impact your debt-to-income ratio(Opens in a new window) and your credit. Only a lender can remove a name from the mortgage, which is usually accomplished through a refinance. Remember however that not all mortgage lenders are the same. A truly experienced mortgage lender will be able to work through different scenarios and let you know which loan options are available based on your income, equity, and credit score.
Selling the home
If neither spouse can qualify for the mortgage independently, or no one wants to retain ownership, the home may need to be sold. There are costs associated with selling, such as the real estate agent’s commission, the cost of any repairs that need to be made to sell the property, and any additional tax liabilities. The divorce agreement might be written requiring that both spouses split the proceeds. After the sale, the mortgage will be paid off, and each ex will collect their share of any profits. For many divorcing couples, this can help provide the closure they’re looking for.
There is life after divorce, but handling the logistics of a mortgage in the meantime is not an overnight process. And depending on what state you live in, there may be different options available to you. Our advice is to be patient, and make sure you surround yourself with people who have your best interests in mind. A good divorce attorney, a financial consultant, and a trusted mortgage originator(Opens in a new window) are three people you should count on for guidance. Finding an experienced loan originator is critical to navigating mortgage solutions that will help you move toward a fresh start. Please reach out(Opens in a new window) to Guardian Mortgage for assistance — we’re here to help.