Mortgages and Divorce

Written by Posted On Friday, 24 May 2024 00:00

When two people decide it’s time to buy a home together, in today’s environment and in many markets, it takes two incomes in order to qualify for the home they really want. That means both will appear on the same mortgage application. Unfortunately, the divorce rate in this country means anywhere from 40 to 50 percent of married couples decide it’s time to split. When this joint decision is made, there are a lot of other things to consider. Support payments, attorney fees, car loans, childcare and more are suddenly prominent. With a jointly owned mortgage however, it can get a little more complicated.

Remember, when two people take out a mortgage together, the lender will use the income from both when qualifying the couple. They’re both jointly obligated. If a divorce settlement is made and one party is responsible for the mortgage while the other is not, while the couple might have agreed to this arrangement the mortgage company was not involved. Both are still jointly responsible, regardless of what the divorce decree states.

Some people might easily be able to take on two mortgage payments each month but many don’t. Especially those who needed two incomes to qualify in the first place. To get rid of the mortgage payment the non-occupying spouse must be removed from the responsibility of making the mortgage payment and having that active mortgage account removed from a credit report. How can this be done and still be in compliance with the original mortgage agreement?

In the instance of a divorce, a couple can petition the mortgage company for a release of responsibility. The lender will then request a copy of the divorce decree clearly stating who will be responsible for the mortgage moving forward. But not so fast. The lender will want to make sure the individual responsible for making the mortgage payment each month has the ability and willingness to do so. 

Different mortgage companies may have different view in this instance but most will want to see at least 12 months of on-time payments toward the mortgage before releasing the party from the note completely. At this later stage, the ex-spouse removed from the note now has the monthly obligation removed from the credit report, freeing up monthly income to qualify for a new home loan.

Another way is to have the occupying spouse refinance the existing mortgage on his or her own. Again, this might present some qualification issues but during the union the mortgage payment was being paid down. This results in a lower payoff amount which would then mean less income needed in order to qualify for the new mortgage. This is perhaps the ‘cleanest’ way to get one ex-spouse off the mortgage as well as title.

Getting one party off the note with a goal of sole ownership can be accomplished, there’s just a lot more paperwork needed along with a bit more time to get the new loan approval over the finish line.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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