Breaking Up With Your Mortgage

The home is a symbol of warmth, safety, and security…right up until a couple decides to go in different directions. It can then be a major road block to a smooth negotiation process. Speaking with seasoned real estate and finance experts early on in the process can often save time and expense as well as reduce the stress for all involved. There are several factors to consider when determining what to do with the marital residence:

Assessing the current value and shared equity

Couples are often overly optimistic when assessing the value of their property. Regardless of what you paid for the home and how much work you have done or money invested into it, the value is determined by a licensed appraiser who will compare it to similar home sales within the past 90 days. Depending on the sales activity in your neighborhood, this number could vary throughout the year. If one spouse is remaining in the home and buying out the other, the appraisal must be ordered from the lender handling the refinancing. They are often able to provide a rough estimate of value initially to aide in the negotiation discussion.

Once the approximate value is given, the existing loans/liens on the property are subtracted and the remaining amount is the shared equity to be divided. If one spouse is remaining in the home, they will typically subtract half of the existing property loans/liens (as they were obtained by both) from the equity to be split. Other times a spouse may agree to forego any equity buy out in exchange for other assets. These are all factors that are determined on a case by case basis and often involve the consultation of a financial advisor.

Removing a spouse from the mortgage

If the goal is to have one spouse remain in the marital home and both parties are on the existing mortgage, the only way to have one removed is through a refinance. This means that the spouse remaining in the home must have enough *documentable, qualifying income* to get approved to carry the loan on their own. This can be challenging given the tighter lending guidelines, so it is critically important to determine early on in the process whether this will be feasible. If the remaining party is going to be obligated to pay child support and/or alimony then these payments will be subtracted from their gross income and may impact a loan approval. If the remaining spouse has not worked outside of the home but will be receiving enough child support/alimony to qualify for the loan, they will need to have received a minimum of six months support payments in order to qualify. These amounts must also be substantiated by a court approved divorce agreement prior to the loan being approved. Again, having a consultation with a seasoned mortgage advisor early on to determine whether the remaining spouse will qualify – and be comfortable – carrying the loan on their own is paramount to the negotiation process. You can save much time, energy and money if it is found early on that the only option available is to sell the marital home because neither party qualifies on their own or the payment will simply be too much for their new budget.

Restructuring a loan prior to divorce being finalized

On occasion it is possible to remove someone from the mortgage prior to the agreement being finalized. In the instance where one spouse will be staying in the home and both parties agree that there will not be a buyout, the remaining spouse can proceed with a refinance as long as they qualify using their income only. In this case, both parties may choose to remain on title until the divorce or mediation has been finalized, at which point the other spouse is simply removed from title via a Quit Claim deed. This is particularly helpful in a rising interest rate environment where the remaining spouse needs to act quickly to take advantage of a lower rate and payment. At the end of the day, both parties need to be in agreement with the course of action and it needs to be in both of their best interest. By seeking the advice of a seasoned mortgage expert that specializes in divorce cases, couples are often able to expedite negotiations around the marital residence and alleviate a lot of unnecessary stress.

Protecting your credit

Our credit is becoming our largest asset and can often suffer damage during the divorce process. This is an emotional time and not all cases are amicable. All payments must continue to be paid on time. It is very important to obtain copies of your credit report as soon as you decide to split. The best report is that obtained by your mortgage expert, as they will be evaluating the financing ability for one or both of you anyway. Identify what joint accounts are open and get everything separated as soon as possible. If there are errors on the report or negative items, there are ways to clean it up prior to applying for the new mortgage, thus securing better rates and terms.

Although there are specific guidelines around financing for divorcing couples, each case is unique and needs to be properly evaluated early on in the process. The marital residence can be a highly emotional component of the negotiation and if you can obtain the proper facts and recommendations at the beginning, you may just find that breaking up with your mortgage is not that hard to do!

Sheira MacKenzie is a Senior Loan Originator and Divorce Specialist with Fairway Independent Mortgage in Needham, MA. She has been in the industry for 12 years and devotes a significant portion of her practice to assisting couples going through divorce. For a complimentary consultation and credit report please contact Sheira at (781) 719-4673 or sheiram@fairwaymc.com

© 2019 Levine Dispute Resolution Center LLC. Dedham and Northampton, MA
781.708.4445 | 413.341.1017 | Email: wmlevine@levinedisputeresolution.com

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