Divorce/Separation Mortgage
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Divorce and Mortgage: Navigating Your Options
Divorce means moving on to the next phase of one’s life, but it can be complicated if the people involved own a home and have a mortgage. If you’re getting divorced but still have a mortgage with your former partner, it’s important to know what your options are. This can make the process a little less daunting.
Options for Managing Your Mortgage During Divorce
Retain the Original Mortgage
When there’s a divorce, usually one spouse ends up moving out. However, from a legal perspective, that still leaves both parties on the mortgage. What this means is that if you’re the one who moves out, your credit score can take a hit if your former partner fails to make regular mortgage payments. As a result, this isn’t a good option.
One Spouse Retains the Home and Refinances
In this scenario, one spouse agrees to buy out the equity of the other spouse. Next, the spouse retaining the home refinances the mortgage in his or her name only. If you’re the spouse who will be retaining the house, you should have the ex-partner sign what’s known as a quit claim deed. This means that the person will be relinquishing any claims on the property
One Spouse Retains Both the Home and the Mortgage
It’s possible that a bank will allow the person who will remain in the house to simply assume the existing mortgage without refinancing. Before doing so, the lender will want to ensure you have the financial ability to make all the payments. If you’re going this route, you will need to sign what’s called an assumption agreement and also sign a waiver of liability for your former spouse.
Sell the House
Many couples who are divorcing decide to just sell the house. In this event, there are some things to consider. First, you’ll want to keep a record of the selling price of the home. This is relevant for the divorce proceeding when assets are being divided. Second, selling early may involve a financial penalty from the lender because you’re breaking the mortgage early. Finally, if you intend to purchase a new home, you’ll want to get pre-approved by the bank for a new mortgage before you start looking for a place.
Rent Out the Property
If neither party wants to live in the house or sell it immediately, renting it out can be a viable option. This arrangement can provide a steady income stream that helps cover the mortgage payments. However, both parties should agree on how the rental income will be managed and shared.
Seek Professional Mediation or Legal Advice
Navigating mortgage decisions during a divorce can be complex. Consulting with a mediator or a legal professional specialized in family law can help ensure that both parties understand their rights and obligations. This step can also aid in finding a mutually agreeable solution regarding the house and mortgage.
Careful consideration and communication are key when deciding how to handle a shared mortgage during a divorce. Each option has its pros and cons, and what works best will depend on the specific circumstances of the divorcing couple.