Divorce is already a stressful process, and when it comes to homeownership, things can get even more complicated. Whether you’re looking to keep the home, buy out your ex, or purchase a new property, understanding how divorce impacts your mortgage is crucial. Here’s what you need to know:
Marital Debts Can Haunt Your Mortgage Application
Just because your divorce decree states that your ex is responsible for a certain debt doesn’t mean lenders will automatically ignore it. If your name is still on joint debts—like a previous mortgage, credit cards, or auto loans—those obligations can affect your debt-to-income (DTI) ratio and make it harder to qualify for a new mortgage. However, many lenders will exclude debts assigned to your ex in the divorce decree from your DTI, provided there are no late payments. Until those debts are refinanced, paid off, or formally removed from your credit report, they can still be a consideration in the lending process.
Buying Out Your Ex-Spouse with a Rate/Term Refinance
If you want to keep the home and remove your ex-spouse from the mortgage, refinancing is often the best solution. This allows you to refinance the existing loan into your name only, often at a more favorable rate, and pull cash out to pay-out any equity assigned to your ex-spouse. Keep in mind that your income, credit score, and debt obligations will be reassessed by the lender. You’ll also need to ensure that your ex signs a quitclaim deed or equivalent legal document to remove their ownership interest.
Selling the Home and Moving On
In many cases, selling the home is the cleanest break. The proceeds can be used to pay off the existing mortgage and any remaining marital debts, giving both parties a fresh financial start. If you’re looking to purchase a new home post-divorce, working with a lender early in the process can help determine what loan options are available based on your new financial situation.
Mortgage Assumption: A Less Common Option
Some loans allow for a mortgage assumption, where one spouse takes over the existing loan terms without refinancing. However, not all loans permit this, and lender approval is required.
Protecting Your Credit Post-Divorce
Even if the divorce decree states that your ex is responsible for the mortgage, missed payments can still impact your credit score if your name is on the loan. Ensuring all joint debts are refinanced or paid off is essential to protecting your financial future.
Final Thoughts
Divorce brings many financial challenges, but understanding how it affects your mortgage can help you make informed decisions. Whether you’re looking to refinance, sell, or purchase a new home, working with a knowledgeable mortgage professional can ensure a smoother transition into your next chapter.
If you have questions about your mortgage options post-divorce, reach out today!
Chris Lai is a Licensed Mortgage Professional of Shupe Lending Group NMLS ID# 2478065. Many of the borrowers of Shupe Lending Group are individuals who did not qualify at other lenders due to those lenders' overlays on government and conventional loans. We have a reputation of being able to work with over 270 different lenders to be able to offer out clients dozens of non-QM and alternative financing loan programs. Any non-QM mortgage loan program available in the market will be offered by our team at Shupe Lending Group. Our team is available 7 days a week, evenings, weekends, and holidays.
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