by Patricia Zeto of PCL Financial Group and Lisa Zonder of ZFLG
Your Mortgage May Be One of the Most Important Aspects of Your Divorce
One of the main issues during divorce is the division of assets, usually including a family residence. Deciding what to do with the home during a divorce can be one of the most emotionally and financially challenging issues.
If you are facing a Gray Divorce, you have likely lived in your home for a long time and have a lot invested in it. Here are a few facts to keep in mind as you are contemplating how to handle your residence.
If there is a mortgage on the house, most mortgage companies will not allow you to simply remove one spouse from the loan and the deed. Instead, the spouse who will be living in the house will need to refinance the mortgage into their name and remove the other from the loan and title. This can prove to be difficult.
Refinancing Your Mortgage and Interest Rate Considerations
The process of refinancing your home is typically the same whether you are single, married, or divorced. You will need to supply proof of income, assets, insurance, credit – among other documentation. The main difference is that you’re removing one of the parties from the obligation of the loan and often having to buy them out of their share of the equity, which often equates to a larger loan amount. You will also be trying to qualify for that larger mortgage with one income, instead of two, and a higher monthly mortgage payment.
Fortunately, we are currently in a very low interest rate environment with escalating home values. There are many lenders who will consider these transactions as a “rate and term” refinance rather than a cash out transaction. This helps with the interest rate and the terms of the loan. Many lenders will accept spousal support as income if there is a final divorce decree and support has been received (and documented) for 6-12 months.
On the flip side for the person paying the spousal support, many lenders will take the monthly support payment off the top of the income instead of including it as a monthly obligation which can greatly impact the ability to qualify for a loan. Lenders are now more flexible and willing to work with borrowers trying to retain the family home.
If neither spouse can qualify for a refinance on their own, then selling the home is probably the only option. Make sure to always work with an experienced mortgage loan officer and Family Law attorney when determining your best course of action with your home.
Contact a Mortgage or Family Law Professional
If you need Mortgage or Family Law advice, the teams at PCL Financial Group and Zonder Family Law Group are here to help. Both PCL and ZFLG believe in a holistic approach to divorce and are committed to navigating you through this time.