Many divorcees opt to remain in their marital homestead instead of selling it. The reasons are could be many; be it to provide stability for your children, or to avoid the hassles of moving, and any number of others. So you may be asking yourself the question: “How can I Retain Ownership of My Home During A Divorce?”.
But the process isn’t as easy as simply signing over your property rights to the other party. In fact, in some ways it can be more complicated than selling a home. There are many factors you should consider before you go down this road.
How Does this Work?
So why can’t one party to the divorce simply sign some sort of deed transferring all their ownership to the property over to the other person and call it a day? Well, if you own the home free and clear of any mortgage or other encumbrances, that might be an option for you. However, most homeowners in the US own their home subject to at least one mortgage on their property. Even more commonly, this mortgage is in both spouses’ names. Even if you tried to transfer ownership with a deed, the other spouse will still be a responsible party on the mortgage. If the spouse remaining in the home fails to make any payments or goes into foreclosure on the property, the other spouse will be liable for the mortgage. If the property goes into foreclosure, it will affect both spouses’ credit, even if the foreclosure was only the fault of one of them.
There are a few ways to “get out” from the mortgage for the spouse that will be moving out. Whether or not these are possibilities for you will depend on things like your credit and income, the equity in your home, and the type of mortgage that you have.
- Refinancing: A refinance would occur when a lender (not necessarily the one you currently have) takes and pays off the loan that you currently have on your home and replaces it with a new one with new terms. Usually this is done to take advantage of a better interest rate, a different loan term (15 years v. 30 years, etc.), or to pull equity out of the home. In the divorce context, we aren’t refinancing in order to take advantage of any of these; though it can happen. We are simply trying to get an individual removed from the loan so that only the spouse living there will be responsible.
- Loan Assumption: Loan assumption occurs when another person or entity takes over or “assumes” the responsibility for the current loan in place on the property. All the same terms and conditions would still apply, and the mortgage balance would remain the same. This option is only allowed if the mortgage you took out on the property is “assumable”, and again only if the spouse looking to assume the mortgage would qualify for the mortgage on their own. You can check your mortgage paperwork to see if this is the case or not.
These are only two options you might consider and there may be other options that are possible so discuss which option is best for you with your lawyer and/or lender. Be sure to talk to more than one lender and see what programs exist. Lenders want your business and may earn it by coming up with the right option for your situation.