Divorce can inspire many abrupt financial changes. The income that previously supported one house may have to cover costs at two separate residences. Spouses have to pay for lawyers and work out arrangements to divide their property.
If they own a home together, the main priority when they negotiate may be what happens with the home. Some spouses disagree about who should retain possession of their marital homes. Others may find themselves intensely disagreeing about what the home is worth. Regardless of who stays in the home, the spouses usually need to find a way to address their accumulated equity in a fair manner. There may be concerns about the mortgage that they share as well.
How can spouses address a shared mortgage when they divorce?
Refinancing is a common solution
Much of the time, married couples need the income and credit scores of both spouses to qualify for competitive mortgage terms. If both spouses are on the mortgage note, then the spouse intending to leave after the divorce may not be able to acquire a new mortgage until they resolve the outstanding one in their name.
To achieve that goal, the spouse retaining the home usually has to refinance. The spouse leaving the property must sign a deed giving up their interest in the home. Once they have adjusted title records for the property, the other spouse can refinance to assume the mortgage solely in their name.
In some cases, refinancing may not be realistic. The spouse staying in the home might have minimal income, as they primarily care for the couple’s shared children. In such scenarios, spouses may have to negotiate special arrangements that allow for refinancing later.
Other times, refinancing is feasible but only if the process does not include the liquidation of any equity. Withdrawing equity to compensate a spouse could increase the principal balance owed and also monthly payment amounts.
Most of the time, people who do not retain possession of their homes after divorce eliminate their mortgage-related and can eventually acquire a mortgage for a different home. Of course, obtaining a new mortgage for a different property requires adequate income and a high enough credit score.
Understanding what happens to the most significant financial obligations shared by spouses can help people better prepare for upcoming divorce proceedings. People concerned about their mortgages or possession of their houses may need assistance as they prepare for property division negotiations, and that’s okay.