Divorce is coming. And whether you consciously detach or end a failed relationship bluntly, a final separation can be a long and emotionally draining time, accompanied by endless legal fees and paperwork. In addition to all this, there is the delicate issue of the division of shared property.
Your marital home is probably the most important asset that you and your partner own together. While many couples agree to sell the house and share the profits when they separate, there are times when one partner buys the other. But homeownership solo can be difficult, and that’s where refinancing your mortgage comes in.
“If one of the spouses obtains the marital residence and there is a mortgage, the spouse with the house may also be required to refinance,” says Melissa Cohn, Regional Vice President and Executive Mortgage Banker at William Raveis Mortgage.
Keep in mind that refinancing requires taking out a new home loan, which means you will need to meet the eligibility requirements before you are approved. And while you and your partner may have gotten loan approval when jointly purchasing your home, the process may be different when you’re single.
So here’s what you need to know about refinancing your mortgage when you end a relationship.
If you’ve recently been divorced, your finances have likely changed if you’ve gone from two incomes to support a household to one income to cover all of your bills. Fortunately, refinancing a mortgage can save you money, usually when current mortgage interest rates are lower than your current rate.
And even if your mortgage payment only goes down, say, $ 50 a month after refinancing, those savings will seriously add up on a 30-year loan. (To see how much money you could save, calculate the numbers on an online refinance calculator.)
First, remove your partner’s name from the loan and title
Lenders will hold both sides of your current mortgage accountable until your former partner’s name is removed from the loan. Only the current lender can remove a spouse’s name from the existing mortgage. The lender will need to see the property agreement as stated on the final divorce decree to proceed.
Remember to remove your ex-spouse’s name from the title deed as well. Otherwise, your ex-spouse could profit from the sale and equity in the home.
“Mortgage and title are separate,” says Shelby mcdaniels, Channel Director for Commercial Real Estate Lending at Chase. “A person can be listed on the title as the owner of the property, but not included in the mortgage, which means they are not responsible for paying off the debt.
“If a spouse is only included on a title – not a mortgage – it’s a simple process of signing a waiver to transfer ownership,” McDaniels adds.
How to qualify for a solo refinance
“To successfully refinance, the spouse who plans to keep the property must qualify for the refinance loan, based on their individual income and assets,” says McDaniels.
If you are receiving alimony and child support, this money may help you qualify, but only if you have received this income for at least three months. If you determine that you have enough cash to qualify for refinancing, the process can be straightforward.
Getting a good mortgage rate
Remember, you don’t have to refinance with your current lender. So shop around and compare several lenders for the best rate.
“And in today’s still very low rate environment, a better rate can usually be obtained,” Cohn said.
The mortgage rate you will get when refinancing depends on your income, debt, credit rating, and the real estate market environment.
To take out a new loan, a newly divorced person must have a credit score of at least 620 for conventional loan refinancing, according to LendingTree.com. And to be eligible for Federal Housing Administration refinancing, you’ll need a minimum credit score of 580.
You can also have a maximum debt-to-income ratio of 45% for a conventional loan and 43% for an FHA loan.
“A mortgage advisor can help you understand how much you can afford and if you qualify, especially if you are considering refinancing to become the sole owner of a property,” says McDaniels.
And always check with your current lender once you’ve found the best rate to see if the lender can offer you an even lower rate or a discount on closing costs.
When to do a cash-out refinancing
If your ex-partner wants payment for half the property, you may also want to consider cash refinancing, Cohn explains.
Refinancing with cash is a way to refinance your mortgage for more money than you owe, with the difference paid directly to you in cash. You are essentially taking equity out of your home to pay your ex-spouse for their share of the property.
Just keep in mind that your new loan total will be the mortgage plus the money you take out, so analyze these numbers very carefully before you go for this refinancing option.