Names on mortgages
If you and your ex-spouse's name are on the mortgage, you will both be held liable for the mortgage unless you refinance it out of their name.
Removing my ex-spouse
There are two ways for you to remove your ex-spouse from your mortgage: refinancing, or signing a release of liability.
A release of liability is a document that releases someone from their obligation to pay back the loan on the house. You can request this directly from your lender but keep in mind that your lender may not grant this to you. If you cannot obtain a release of liability, the other option is to refinance the mortgage.
What happens if I can't refinance after a divorce?
Most people run into the problem when trying to refinance their home after a divorce is qualifying for a new loan.
Criteria for refinancing
- Credit core.
- Debt-to-income ratio (DTI).
When you are trying to refinance your loan, your assets, income, debts, and credit score will determine whether you get approved or not. Most lenders require you to have at least a 620 credit score before they consider extending you an offer.
Your debt to income ratio is the total amount of your monthly debt divided by your monthly income. Lenders are looking for you to have no higher than 43% DTI approved for your refinanced loan.
Even if you were to be approved for refinancing your mortgage, it is essential to note that if the market conditions are not favorable, you could end up with a higher interest rate than you wanted.
If you have been approved to refinancing your home loan through a different lender, you will need to obtain a quitclaim deed form to release your ex of their responsibility to the mortgage. A quitclaim deed is a document that your ex-spouse will need to fill out to give up their rights to the property.
Once the quick claim deed form is completed, you and your ex-spouse will have to go to the new lender's office and sign the document in front of the loan officer.
After your ex-spouse has signed the document, the loan officer will notarize the quick claim deed form, officially taking your ex-spouse off the property deed and mortgage.
If all else fails and you cannot refinance your house or your lender declines to release you of liability, the next best thing to do is to sell your home and split the proceeds with your ex-spouse.
You can check the value of your home first to see how much your house is worth selling in today's market before you make your final decision.
Who is responsible for the mortgage?
If you and your ex-spouse purchased the house jointly, you are both liable for the monthly payment on your house even after a divorce.
Even if you and your ex-spouse decide that they will pay half of the monthly house payment or the entire monthly house payment, you can risk them not holding up their end of the agreement.
Your lender may not dismiss your late payments if your ex-spouse fails to keep paying on a mortgage on time or at all. Even if you have it listed in a divorce decree that they are responsible for the payments, a lender is not obligated to uphold that document.
Your mortgage lender will most likely remind you that your name is also on the mortgage, so they consider you just as responsible as your ex-spouse for those payments.
Will my credit be affected?
During this stressful time of trying to move on and start your new beginning, you may be wondering how your mortgage will affect your credit if it is not paid on time.
If there has been an agreement that one or the other party is to pay the mortgage, make sure that they hold up their end of the bargain, or else it can cause your credit to crash.
A great way to safeguard your credit is to put in the divorce decree that if your ex-spouse does not pay the loan on time or defaults on loan, that you will be allowed to sell the house.
What is a home buyout?
If you cannot refinance your house after your divorce, you can look into the possibility of a buyout. A home buyout is you paying your spouse their equity on the house less any amount due on the mortgage.
To figure out just how much equity your ex-spouse has in the house is ideal for getting the house appraised. Once you figure out how much the home is worth, subtract the amount you owe on the mortgage, and divide that number in two.
For example, if your house is worth $600,000, but you owe $100,000 left on the mortgage, then there is a $500,000 inequity on the home. Since you and your ex-spouse both have a financial interest in the house, you each have $250,000 in equity.
To determine how much you must pay for the buyout, you will add your ex-spouse's equity and the amount left on the mortgage together. With the example above, the buyout that you would have to pay your ex would be $350,000 before you can take over complete ownership of the house.
Selling the house
When you can't refinance after a divorce, and the only other option is to sell, you will want to hire a real estate attorney.
Interested in your home's current market value? Receive a free online home value estimate!
Your real estate lawyer may be able to help you revisit what options you have, and if selling is the better option, they will recommend you to do so. There also may be specific laws in different that are deciding factors on how property is split.
Selling my house to an iBuyer
If you aren't interested in the process of obtaining a real estate agent and dealing with showing your house at odd times that are inconvenient to your schedule, going through an iBuyer may be a better option for you.
What is an iBuyer
An iBuyer is a company that uses an algorithm to price your home and make you offers. They typically have a vast amount of capital and financial resources to pay you a significant amount on your house.
Pros of using an iBuyer
- A great reason why using an iBuyer is ideal is that there are no realtors involved. There is no hassle of having to find a real estate agent that you trust. The whole selling process is between you and the iBuyer.
- When you are selling your house independently, it can take some time before you decide on the right offer. That isn't the case with an iBuyer; they typically close as fast as 24 hours.
- Through an iBuyer, you don't have to worry about inspecting your home as it is not required to do. If any repairs need to be done, they will do it for you.
- A big hurdle that many homeowners face when selling their house is having to deal with showing the house at times that are inconvenient to them. iBuyers will deal with showing your house to potential buyers, and they will also take care of staging your home.
Cons of using an iBuyer
- The iBuyer concept and community are still pretty new, but they are a fast-growing industry. Because iBuyers are relatively new, there may not be an iBuying option available in your area.
- When you decide to use an iBuyer, you can't negotiate your house's offer. They typically offer you the price that is most accurate for your home and its condition.
- If you prefer to have a person to be your main point of contact to handle the entire transaction in place of you, then going through an iBuyer may not be your best move. Some people don't have the confidence to sell their house on their own, so they prefer to go through a realtor instead of going through handling it independently.
To learn more about the pros and cons of using an iBuyer, you can click here.
Start your new beginning
Deciding whether to keep or sell the house can be an emotional decision, especially during a divorce. You may not want to sell the house because of the memories and sentimental attachment, but it is essential not to let your emotions rule you during this challenging time.
Instead of wondering what happens if you can't refinance after a divorce, seek the better option and sell your house to move forward with your life.
When you are ready to sell your house and start that new beginning for yourself, submit your address to get the best cash offer for your home.