Friday, September 28, 2018

Breaking up with your home: Handling homeownership during a divorce by Randee McDonald

Sometimes love is fleeting and marriages end, but that mortgage you agreed to pay together back when you were in love is still your responsibility…until you find a way to divorce that, too.
Usually, the mortgage is the biggest liability a divorcing couple must split, but divorcing your mortgage isn’t always easy. As far as your mortgage lender is concerned, if the mortgage was taken out in both of your names, then you are still required – and expected – to pay that every month.
Here are a few options that you should consider when deciding how to handle the house and mortgage if you find yourself going through a divorce.

Selling the house
If neither party is interested in keeping the house, then selling it and splitting any profit after the mortgage is paid off from the proceeds is a decent and fairly straight forward option. Keep in mind other factors like the current housing market and how much is still owed on the mortgage versus what you can sell the home for. It needs to make sense to be able to sell the home for at least what is owed on it.

Keeping the house and refinancing
Maybe one of the spouses has a strong preference to stay in the house versus selling it. In this case, they will need to make sure that the other spouse is off the hook from any financial responsibility to the house, free and clear. The best way to do this is for the spouse wishing to keep the house to refinance the current loan themselves.
For this to work, the mortgage should not be “under water.” In addition, the other spouse agrees to relinquish their share of the house; and the spouse wishing to keep the house has sufficient credit and income to qualify for a loan and subsequently continue to make mortgage payments alone every month.

Keeping the mortgage as is
This is obviously a risky option, especially depending on how amicable the divorce actually is. But if neither spouse is able to refinance the loan on their own, unable to sell the home, or pay off the existing mortgage, the mortgage could be left as is. This is certainly a risky scenario, as one spouse has to hope that their ex is making the payments each month. If not, both sides will get tainted credit as a result.
Any divorce decree should specifically spell out who will be responsible for the mortgage and what happens if that party misses a mortgage payment, such as stating that the house must be sold or refinanced within a specific time period.
Remember: just getting yourself off the deed does not mean that you are off the mortgage! This is a very important distinction that should be understood up front. Your title company should be able to help you with documents required to make this happen for a smoother (if that’s possible) divorce process.

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