Something that can make them even more complicated, however, is making choices about a home and mortgage that are co-owned.This challenge isn’t unique to your divorce. The Centers for Disease Control and Prevention, also known as the CFC, reports that almost 800,000 total couples divorced back in 2017. That was the last year data was available from so far.
Approximately 60 percent of all Americans own a home, which means that most divorcing couples have to make some hard decisions about housing. There are proven mortgage options that can help both sides of a divorce move ahead with their lives following a separation. Such options usually depend on a variety of factors, including credit scores, home equity, and if one of the two people would like to stay in the home.
Nearly any set of circumstances can be answered with one of the options that are available.
Refinancing the Mortgage
The simplest solution is refinancing the mortgage in a way that leaves only the name of one person on that loan.
When the refinance closes, the responsibility for the monthly mortgage payments would fall only on the shoulders of the person staying alone on the loan.This is a chance to remove the name of whichever person isn’t going to making any mortgage payments from the title to the home. If need be, consider cash-out refinancing to pay out any percentage of equity that is due to the departing party.
It’s potentially the cleanest solution, and yet it will only work provided certain conditions. There are several issues that can prevent you from doing a refinance.
Income: You might not have enough income to independently pay the mortgage by yourself. You could discover that your lender won’t approve a loan for just a single-income household. Unless you’re able to rapidly increase your income, you might have to sell your home.
Credit: It’s possible that your credit scores fell since you first took out the original mortgage loan. That could mean you don’t qualify for a potential refinance anymore. A rapid rescore might overcome an otherwise low credit score, but the success rate of this technique is not a sure thing. Many times, the only thing that can address a person’s low credit score over time is rebuilding credit history.
Equity: If you recently bought the home or purchased it at a time of higher property values, then your home might not have sufficient equity for a refinance. For example, if you only have a few percentage points of equity, then a refinance might be cost-prohibitive, and maybe even totally unavailable. Fortunately, mortgage options do exist that can help you out with any lack of equity.
Removing the Spouse When the Home Equity is Low
Certain kinds of refinancing let you remove one of the borrowers, regardless of the low equity position of the home.
Spouse Removal Via FMERR Refinancing
FMERR stands for Freddie Mac Enhanced Relief Refinance. It might work for you provided three conditions. First, you must have bought your home after Oct. 1st, 2017. Second, the mortgage must be a minimum of 15 months old. Third, the loan is only open to current Freddie Mac loan borrowers. However, if you have a Fannie Mae loan, there is a similar program that’s available to you.
The remaining spouse must requalify for their loan so they can prove their ability to make payments free of co-borrower assistance. You’ll need a minimum score of 620. You can’t get any cash out using this kind of loan. It’s only a tool you can use to remove a spouse from your loan.
FHA Streamline Refinancing
If you last refinanced or bought your home using an FHA loan, then you’re allowed to refinance just to remove the other borrower.
On the other hand, the remaining spouse must demonstrate that they’ve been personally handling the whole mortgage payment for the previous six months. This option might work well for anyone separated for this long, if not longer. Having said that, it might not prove ideal if you want to finalize the mortgage situation quickly or expediently.
You might use the VA streamline refinancing if you want to remove your spouse following a divorce. Most of the time, the veteran is the one that should stay on the loan. If the veteran is the departing individual, however, then the remaining spouse needs to refinance their mortgage into another kind of loan.
Should the remaining spouse prove eligible for VA loans, then they might choose to use a VA cash-out option for their loan. This choice lets homeowners open a new loan for much as 100-percent of the total home value as it currently sits. This feature might even let the remaining spouse pay out the equity due to the departing partner, per the divorce decree. When you’re facing a divorce, there’s no shortage of refinancing options available to you. However, if you’re unable to refinance, which can happen for many reasons, then you have to find a different solution to your problem.
Pay The Spouse Off for Their Home Equity Share
Many state courts let divorcing couples split the home’s equity that’s been built up between two divorcing partners.
You can use many different tools to raise the cash necessary to ‘buy out’ your spouse in order to keep the home. Consider using a home equity loan if you have any equity built up in your home. This wouldn’t involve refinancing the initial mortgage you had first. You’re just adding a second mortgage on top of it. You’ll enjoy low closing costs, and these kinds of loans are much easier and quicker to get than primary mortgages.
A personal loan might work if your home doesn’t have much equity if any. Personal loans won’t rely on your home to get approval, although your income circumstances and past credit history will certainly matter. Loan amounts range from $50,000 up to even $100,000. Approval takes days rather than weeks, and you won’t have to put your home up as any collateral.
All in all, a personal loan can be a fast way to start raising cash so you can pay off the equity share your departing spouse has due to them.
Selling Your Home
Another choice is just selling your home. You and your divorcing spouse would make an agreement to put the home on the active market and split any profits from its sale.
You’ll have to decide how to handle mortgage payments prior to the sale closing, but this particular challenge is a short-term obstacle instead of longer.Still, this answer doesn’t work in every divorce case. If you and your divorcing spouse have kids, you might not want to make them move from a home they’ve already been growing up in. Also, if your area’s real estate market is weak, you might fear losing money should you sell.
Equity is crucial if you sell. You’ll usually lose from 7% to 10% of the overall home value if you sell. That total happens because of title insurance, taxes, agent expenses, and various fees.For example, you might have to sell your home for $220,000 just to break even when you owe $200,000. If not, you would have to show up with a check when the sale closes.
If refinancing the mortgage loan or selling the home aren’t options, you do have one more choice. Still, it can be risky.
Keep Both the Mortgage and the Home
If you’re neither willing nor able to refinance the home or sell it, then you might choose to just keep your home and maintain the mortgage as it currently sits.
Both parties would stay on the loan, and both would be liable for payments.This would require very specific language in your divorce agreement about who makes the monthly mortgage payments. Your agreement could state that the former partner pays the mortgage, even if you stay in the home with the children.
Your divorce agreement could also stipulate that you as well as your divorcing spouse each pay half of the monthly mortgage. Bear in mind that this set of circumstances results in missed payments should your former partner fail to abide by the agreement, either by choice or error. Assume an example where your former spouse has to pay the monthly mortgage but your name is still on the loan. If your former spouse winds up missing a payment, then you could take a triple-digit fall on your FICO score.
If your name stays on the loan, then your lender assumes that you are equally responsible for making the monthly payments. Your mortgage holder isn’t going to dismiss your late payments, even if a divorce decree stipulates your ex as responsible. Given this, a divorce shared mortgage is only likely to work in an amicable split.
Protecting Your Credit
You can protect yourself with the right steps.
Your divorce papers might state that the former spouse will reside in the home before applying for refinancing at a particular point. When the refinance concludes, the time will come to remove your name off of the mortgage. Your divorce agreement could stipulate that your ex keeps making payments until the refinance is officially closed, meaning you’re not responsible for the mortgage anymore.
You could also give yourself extra protection by inserting a specific clause in the divorce agreement. It might say that should your ex not close the refinance within a set period of time, then the home you lived in at one time will go on the market.
Just remember that regardless of what divorce papers might say, you can’t ever truly protect yourself from the specific actions of a former partner if the mortgage is involved. Even when divorce papers have penalties built-in, they are no guarantees that keep your ex making their payments. Divorcing couples looking for the safest route for all parties might want to consider a mortgage refinance or selling the home.
What are the Current Divorce Mortgage Rates?
Divorce can be complicated, but it need not end your dreams of homeownership. Today’s refinance rates are low enough to make it possible to handle the whole mortgage payment for any divorcing party who would like to remain in their home.
Check out today’s rates when you get a reputable assessment of any options open to you. Then, you can make an educated choice about how to proceed.
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