Divorces can be an unfortunate part of life. There are many aspects that need to be addressed at this time and one of those is the division of the marital property. It is common for one of the spouses to want to keep the property, and that would involve a number of steps, including refinancing after divorce.
Refinancing is the process of updating the payment schedule of and the name on a mortgage to reflect changes or updates. Typically, refinancing is done to take advantage of better interest rates, extend the maturity of the loan, or change the names on the mortgage, such as in cases of divorce.
If you jointly own a home with your former spouse but want to continue with the mortgage on your own, then you will need to engage in refinancing after divorce.
A cash out refinance is a typical refinancing option where your former spouse’s name is removed from the title, and you buy out your former spouse’s interest in the property. Note that you must meet certain requirements for the refinance to be approved. For example, you may be allowed to increase the amount of the loan, but typically to a maximum of 80% of the total value of the home in question.
But what happens when one of the spouses works only part-time or has left the workforce for an extended amount of time, such as stay-at-home parents? You still have options. Some mortgage lenders allow for low-income refinancing after divorce in such situations. Keep in mind that your lender will still have certain lending requirements, but are willing to work with your specific needs. For example, they will consider spousal support if you have received it consistently for a certain amount of time and are scheduled to continue receiving it. They will also look at your credit report and give adequate weight to any part-time work you have recently begun.
When you refinance is another important consideration. Some lenders prefer that the divorce is finalized before they are willing to help you refinance your new mortgage. This will help them calculate exactly how much income you have coming in, and it lets you have the divorce decree in hand during the refinancing process.
Another consideration is the timing of when your spouse will be removed from the title of the mortgage and when they should move out from the home. It may help to choose a mutually agreeable timeline or specific date for these two things to happen. This lets both of you know when you can finish refinancing after divorce and your former spouse can apply for their own mortgage. It also ensures that both of you will be solely responsible for your finances without the possibility of affecting the other person’s credit. For example, if you are both listed as joint owners on the mortgage but your former spouse does not pay the mortgage, you would be responsible for the payment regardless if your spouse is supposed to pay.
Keep in mind that you will incur fees when refinancing your mortgage. Your divorce document may indicate who will pay these fees. Frequently, both parties will split the fees as they will both benefit from the changes to the mortgage.
However, with all of its variables, the process of refinancing may not always be the best financial decision. For example, interest rates could be higher than when you first obtained your mortgage, meaning that your mortgage payments could be higher than before. If this is your situation, you can ask your mortgage lender for a loan assumption process, which simply eliminates another person’s name from the mortgage without making other changes to the mortgage. Make sure you ask about the process as there are likely to be certain requirements that you need to meet.
For people who can work together, refinancing a home after a divorce can help ensure that both people enjoy financial freedom, security, and home ownership. Make sure you understand the process so that you can achieve your goals efficiently and with little stress.