Mortgage & Divorce - Modus Mortgage

Mortgage Difficulties During Divorce

What to do with the marital house is one of the most important decisions that a divorcing couple must make. Trying to come to an agreement on a house and a mortgage might be a nightmare if the split was contentious. Divorcing couples’ options are influenced by a variety of factors, including how their property was financed and titled, whether one partner want to remain in the home, the amount of equity they have in the home, and their credit rating.

If both couples desire to stay in the marital house, deciding who will keep it can be difficult. Once the couple has decided who will receive the house after the divorce, they must ensure that the recipient will be able to afford to keep it.

When making this determination, it’s important to look at the big picture. Even if remaining at home appears to be a better option, it can have a long-term impact on both spouses’ aspirations.

Tax Implications

Working with a divorce lawyer who is familiar with tax law or tax difficulties is always a smart idea when navigating a divorce – even one that doesn’t involve selling a home. If a divorcing couple does decide to sell or is forced to sell, as part of a settlement or to buy out the other spouse’s stake, capital gains taxes may apply. There are also tax implications to alimony payments, which may impact a divorcing spouse’s ability to qualify for a new mortgage or refinancing the marital home’s mortgage. Alimony payments may also have a negative impact on the payer’s income and ability to obtain a mortgage.

Calculating The Value Of Your Home

It’s normal for a couple to split the equity according to their divorce agreement or to utilize it to pay off other debts they’ve accumulated together. Regardless of whether a couple is going to sell the home or one will remain, it’s vital to get a professional appraisal. If the value is contested, multiple appraisals may be necessary.

Selling Your Home

Sometimes, it’s just in the best interest of everyone involved to sell the home, pay off the mortgage, take their cut of the earnings and start fresh. In some cases, however, a divorcing couple may have no choice but to sell if they fail to meet a deadline to refinance the mortgage into one spouse’s name or if neither partner can afford the mortgage on their own. Couples should think about the costs of selling in addition to the mortgage balance. Realtor commissions, fees of sprucing up the property to make it more appealing to purchasers, real property transfer taxes, and capital gains taxes are examples of these.

Refinancing Your Home Loan

Refinancing a home loan into one spouse’s name relieves the other of accountability for the loan. If the couple’s home has equity, the spouse who wants to keep it could use a cash-out refinance to pay their ex-partner their half. In most cases, the spouse asking for the refinance can only use their own income and credit score to qualify. However, if they will receive alimony or spousal support, they can utilize that income to qualify for a refinance if the divorce decree indicates that they would receive alimony for at least three years.

Assumable Mortgages

Assumable mortgages are able to be taken over by another party if the borrower has to vacate or otherwise abandon the loan. Divorcing couples should check to see if their mortgage is assumable…but bear in mind that the assuming party still has to be qualify for a loan for the remaining principle.

Always Remove The Departing Spouse

Besides transferring ownership, it’s critical to have the title changed to reflect ownership post-divorce for the party leaving the home. The non-resident spouse’s ability to qualify for another loan to buy their own property may be harmed if they remain on the mortgage. A mortgage, unlike a divorce order, is a legally binding contract independent of the divorce, so either spouse is still liable if they’re on the loan.

Keep Your Credit Safe

Divorce is an emotional and sometimes tumultuous experience, but the worst thing divorcing couples can do is seek financial retribution. Taking a pessimistic approach to choosing what to do with a mortgage, or even more severe measures such as not paying bills out of spite, might harm both spouses’ credit and future lending alternatives. Closing joint accounts and opening new ones can help you protect your credit score, debt-to-income ratio, and other factors.

No matter what your decision is – sell, refinance, or buy out – make sure you have the correct people around you before making any final decisions about your home or mortgage during a divorce. A qualified divorce attorney, a financial planner, and a mortgage broker are key to navigating this next step in your life. Contact us for a personalized plan for your needs.