Refinancing a Mortgage Following Divorce

Refinancing a Mortgage Following Divorce

When you and your spouse are deciding on property division following a divorce, it is likely that your house is not only the largest asset you have, but also the most expensive. Splitting the house is not as simple as one person moving out and leaving the other spouse responsible. There are often a few complicated financial and legal scenarios to maneuver through before one spouse is in full control of the home.

What can I do to keep my family home?

One of the ways that the house can be placed in the name of one party only is by refinancing the loan. When refinancing, the banks will look at the individual's income and their net worth before agreeing to refinance. Maybe the spouse who keeps the home will also be the one receiving child support and alimony payments. This will be good information for lenders to see since it will prove a higher income than they would show on their own, but alimony and child support must be received for 12 months before it is considered reliable income and these payments need to be shown as ongoing. If a lender is uncomfortable with refinancing the mortgage, the owner must sell the home.

There are a few ways to help refinance the home:

  • Cash in assets to refinance with a larger down payment to reduce the loan amount
  • Check title transfers for mistakes that could potentially delay refinancing
  • Obtain a title insurance policy and check with the county clerk about the change in property ownership
  • Run a credit check before a signing a divorce agreement that details a refinance
  • Hire an advisor that can help you make financial decisions during this emotional time

The homeowner paying child support and alimony may experience some challenges when refinancing. Lenders will examine the new amount they will be paying out monthly and any debts they have incurred before deciding to approve a loan for a home. Further, if their credit history was made better by their former spouse making regular bill payments on jointly owned assets, a drop in credit score may prevent their ability to refinance.