As if getting divorced is not stressful enough, figuring out what to do with the home you own must also be resolved. Who will stay in the home? Or will it be sold? If one spouse remains in the home, how will the mortgage or ownership be handled?
Do you know the most misunderstood property issue that comes up during a divorce? It’s the fact that so many people initially believe that a divorce decree can mandate to a mortgage lender to free one of the spouses from the mortgage obligation. Not true. Not even close.
A divorce decree may specify “who” will reside in the home and “who” will pay the mortgage bill, but it cannot dictate to the lender to remove anyone from the debt obligation that was signed. For example, a decree might specify that the husband will remain in the home, the wife will relocate, and the wife will make the mortgage payment on the marital property – even though she will be moving. But the mortgage documents on file with the lender will remain the same if the home is not refinanced.
Most divorcing couples have similiar issues with this solution. (1) The spouse who does not have responsibility for payment wants their name removed from the mortgage loan. And (2) Both spouses worry about the effect this will have on their credit down the road and their ability to purchase another property. If the mortgage is left as-is, then the lender will continue to report payments to the credit bureau in both names. If one of the spouses decides to purchase another property, then the old mortgage could cause problems.
A better option may be to refinance the mortgage to remove one spouse from the loan. This means that person must qualify for the new mortgage with just their individual income and credit. Some cash from the transaction can be obtained if an equity payoff is required to pay the other spouse.
The other option, of course, is to sell the property. Couples divorcing should seek qualified legal advice. This information is provided solely to share how mortgage obligations are handled and that divorce does not (in itself) terminate a mortgage loan obligation. It is equally important to seek a qualified, knowledgeable mortgage consultant. An improperly structured mortgage transaction will bear a much higher than required interest rate.
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