As a Divorce Resource Specialist (RCS-D), I work with divorcing homeowners and divorce professionals to provide the best loan options based on your circumstances. One of the biggest decisions divorcing homeowners face is what to do with their home.
During a divorce, we look at how the property is currently financed, the amount of equity in the home, and whether one, or neither party wants to remain in the home. There are a number of divorce lending options available, but the best option for you will depend on your individual circumstance.
Option 1 – Refinancing
If the couple has a joint title and mortgage, and they decide one spouse will remain in the home, the mortgage can be refinanced to remove the spouse who is leaving. That releases the leaving spouse from the responsibility for the mortgage. The leaving spouse will, in most cases, also be removed from the title.
The mortgage rate will be based only upon the spouse applying for the refinance’s income, debt and credit score. In some circumstances, if the spouse remaining in the home does not qualify on their own, the lender may require a non-occupant co-borrower to assist in the qualification for a new loan. This is one reason it is important to work with a mortgage broker who has access to a variety of divorce lending programs and lenders.
Option 2 – Cash-Out Refinance
If the couple has equity in the home and one spouse will be remaining in the house, they can request a cash-out refinance in order to give their partner their share of the home’s equity. Depending on the situation, the spouse staying in the home may need to apply for a home equity loan following a cash-out refinance in order to pay money owed to the spouse who is leaving.
Option 3 – Selling
If neither spouse wants to, or cannot afford to, remain in the home, they may need to sell the home and split the profits. In contentious divorces, couples may not agree on the value of the home and the leaving spouse may be set on a buy-out amount. The best way to settle this is to sell the home – that will provide the accurate value of the home. As sellers, it’s important to keep in mind there are costs associated with selling a home, i.e. realtor commissions, repairs, escrow fees, property transfer tax, capital gains taxes, etc. It’s important to consider these costs as it will impact the net proceeds.
Option 4 – Pay Your Spouse Their Share of Equity
You can use savings, a cash-out refinance or a home equity loan to buy out your spouse’s share of equity. If there is an existing mortgage, you will still need to remove your spouse’s name from the mortgage and title.
What is the best divorce lending option for me?
It is important to consider the financial implications of your decisions. Before you make any changes during a divorce, however, it’s important to use professionals with experience. Here are the top 3 factors:
- Capital Gains Taxes. When you sell assets where you make a profit that exceed a certain amount, you may be subject to capital gains taxes. This will impact your net proceeds from the sale of property.
- Alimony payments. The spouse with the higher income who pays alimony cannot deduct those payments from their taxable income. The spouse receiving alimony does NOT have to declare it as income. If the alimony paying spouse requests to pay less alimony, the receiving spouse may not have enough income to qualify for a new loan. If the paying spouse is not granted a reduction, s/he may not be able to qualify for a new loan.
- Credit Scores. In difficult divorces, spouses have been known to refuse payments for joint bills. These actions negatively impact credit scores which can lead to difficulties in obtaining a loan.
I understand the divorce process is stressful and can feel overwhelming. My goal is to help you identify your needs, research the best divorce lending options, and provide you with the best loan for your circumstance. My promise is unmatched service through communication and accessibility. You have a lot on your mind, so I will make sure you know what to expect at each stage of the loan process.