Navigating Mortgages During and After Divorce

  • Mortgage financing can create arguments regarding who is responsible for what during a divorce.
  • Some couples sell the house, split the profits, and pay off the mortgage, due to not being able to afford the payments on one income.
  • Divorce decrees need to clearly state who is responsible for the mortgage, should one party wish to keep the house.

"After the divorce, applying for a mortgage loan will require showing the settlement and how the responsibility for any previous mortgage is solely on your ex-spouse."

Mortgage loans are difficult to navigate in the best of circumstances, but in an unhappy marriage heading toward a divorce, they can be problematic reminders that the couple and the legal system will have to sort out. Given the amount of money taken out in an effort to purchase a family home, it is no surprise that it’s a point of discord and contention in many divorce cases.

When you go and purchase a house, payment financing is put in place, in order to pay for the house itself. For individuals experiencing a divorce, their finances are being split in two, so in many instances, the house may go on the market, according to Time magazine.

Financial commitment

There are a variety of reasons why selling the house would be considered. Two of the main ones have to do with finances. During a divorce, splitting finances causes both sides a great deal of pain to their respective wallets, and selling the house and splitting the profits helps refurbish some of what was lost in the divorce.

According to U.S. News, one or both of the ex-spouses will be paying off the mortgage payments and possibly spending the profits to maintain the home for those years, in cases where the home does not sell.

The other reason has to do with the mortgage payments themselves. Many times, the house’s payments are simply too big for one person to handle on their own. If a spouse wishes to stay in the house, they might need to consider refinancing their mortgage payments. There are many courts that will order that spouse to refinance the home, and if they choose not to, they will be found in contempt of court.  This step might have to be forced, in order to ensure that the spouse living in the house makes regular mortgage payments that you are not liable for.

According to Bankrate, refinancing requires that the couple is not underwater on the mortgage, that the spouse keeping the house has sufficient credit and income to qualify for the refinance, and that the opposite spouse agrees to let go of the house.

Some who do not want to spend the money for refinancing, but want to keep the house can sometimes consider a loan assumption. A loan assumption occurs when the buyer of a property agrees to become responsible for repaying an existing loan on the property, according to Quicken Loans. The buyer assumes the loan with the existing interest rate and monthly payment, moving forward.

These types of loans are rare these days, and the spouse keeping the house still would have to prove sufficient income to make the monthly payments on the mortgage.

On the hook

There also are some instances, when children are involved, where the noncustodial parent might pay mortgage payments without living in the marital residence. In those situations, they may receive a credit or reduction in monthly child support payments. However, it would generally not be dollar-for-dollar, but instead, a proportionate share.

This can get risky, because if one of the ex-spouses stops payments on the mortgage, it directly affects both credit records, causing them to become tainted.

However, there are steps that you can take to ensure that the mortgage payments will be paid by your ex-spouse, who still is living in the family home. It’s possible to include protection within the divorce agreement, so it clearly states that if the ex-spouse who keeps the house misses a payment, the house has to be sold or refinanced.

A new start

If you are in the process of divorcing and attempt to buy a house by getting a mortgage, while still on the hook for another mortgage, you may run into difficulties. If no divorce decree is yet to exist, you still will be treated as a married person, according to Quicken Loans. This means that even though you’re in the process of divorcing, your soon-to-be ex-spouse’s signature will likely be required on a new home loan and all related documents.

The reason that the divorce decree is valuable in these circumstances is that the spouse paying alimony or child support will be considered debt that gets factored into your debt-to-income ratio when purchasing a home.

After the divorce, applying for a mortgage loan will require showing the settlement and how the responsibility for any previous mortgage is solely on your ex-spouse. This is due to the fact that despite it being his or her responsibility, the mortgage still will show up on your credit report. Cancelled checks from your ex-spouse also may need to be submitted, depending on the lending outlet.

There is a myth in family courts that in all states, if the property is titled in one spouse’s name and they have always made the mortgage payments, it is their property. This is incorrect. Even if the house was acquired before the marriage, it still is considered marital property if the mortgage payments were made during the marriage.

In pursuing a mortgage after a divorce, you are taking a financial risk, but it is one that you are solely responsible for. The self-reliant attitude in making payments in a timely fashion and checking up on your ex-spouse’s payment history, so as not to impact yours, will be beneficial actions in keeping your home, your finances, and your credit score all in good standing.

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