Did you know that 60% of the United States population owns a home? Did you know that according to the CDC, in 2016, more than 800,000 couples got a divorce? It’s no secret that many couples who divorce also need to reconcile their homeownership as part of their divorce agreement. Dealing with a divorce is already stressful. But, what do you do about mortgages and divorce and the shared real estate?
There are several options for dealing with a mortgage while getting divorced. Here are three of the basic ones.
Perhaps the best option is to refinance the mortgage so that only one person’s name is on the loan. That way, that person is the one who ends up being responsible for the mortgage payment. The other person’s name comes off the mortgage as well as the title deed of the home. The departing person can receive cash for their portion of the equity as part of the divorce agreement.
There are a few things to keep in mind when you are considering a refinance. The person who is taking the mortgage payment needs to have an income that allows for that. A lender is not going to refinance to a single income household unless that income is sufficient.
You may not qualify for a refinance based on credit scores. While a rapid rescore may provide some cushion against a low credit score, it’s no guarantee. Also, the home may be in a low equity scenario, especially if the home was purchased when home prices were a lot higher. There are mortgage options that can overcome a low equity percentage. Talk to a refinance expert if you are in that scenario.
If refinancing is not an option, you can always decide to sell the house and then split the profits with your spouse.
While this solution seems easy enough, there are some challenges. If real estate values have dropped in your area, you may end up selling the house for a loss. Low equity can also be a barrier, as it normally costs between 7-10% of the value of the house to sell it. Unless you get your asking price, you may be on the hook for some costs when you sell.
There’s also the matter of the children. If your children are settled in their home and are attending quality schools, you may not want to completely uproot them. In that case, selling the home is less of an option.
If those options don’t work, you always have the option of keeping the home and continuing to make mortgage payments. In this case, there needs to be a clear understanding in the divorce agreement as to who will be making the mortgage payment and will that party be making it in full or splitting the payment with the other spouse.
With both parties' names on the mortgage, the lending company holds both parties responsible. So, the risk here is that one spouse will miss a payment or refuse to pay in the future, causing huge problems with the mortgage. Keeping the house and the mortgage going is an option best left for amicable divorces.
An experienced divorce attorney can help you sort out what your best mortgage options are as well as helping to put them in writing. Family Matters Law Group has been helping clients navigate mortgages and divorce for many years. With satisfied clients in Henry, Clayton, and Fayette counties, as well as the metro Atlanta area, we stand ready to help you choose the best option for your family and your house. We’re ready to hear your story so contact us today!