Refinancing your house after divorce: What you need to know

If you and your ex-spouse are dividing up shared real estate after a divorce, refinancing your house could be one way to move forward – and we’re here to make sure that process goes as seamlessly as possible for the both of you.

Let’s take a look at whether you should refinance after divorce and what you should know about your responsibilities for the mortgage debt.

3 reasons to refinance after divorce

It may make sense to refinance your home after getting divorced. Let’s take a closer look at a few reasons why.

1. To purchase a new home

A refinance is one way to remove someone’s name from the mortgage. This protects an ex-spouse who no longer has ownership interest in the home. It can be an important step if that former spouse plans to purchase a house after the divorce and take on a new mortgage.

Removing an ex-spouse from a home loan will also lower their debt-to-income (DTI) ratio, which will make it easier to secure a loan with a fair interest rate.

2. To protect your credit

If your name’s on the mortgage, then you have a legal obligation to pay it. If your ex kept the house but misses or is late on mortgage payments, your credit score could be affected. A refinance that removes your name from the mortgage will ensure you’re not held responsible for debt that isn’t yours anymore.

3. To take cash out

Property values have climbed over the past several years, which means you might have enough home equity to get cash from your house.

A cash-out refinance can be one way to split assets with your ex. Say you want to keep the house but need to buy out your former spouse’s share of the home. With a cash-out refinance, you could get money from the equity to pay them.

Mortgage vs. title when refinancing your house after a divorce

To figure out whether you need to refinance after a divorce, it’s important to understand the differences between the names on your home’s mortgage and the names on the title.

Names on the mortgage

The names on the mortgage show who’s responsible for paying back the debt. If both you and your ex-spouse’s names are on the mortgage, then both of you are liable for the monthly mortgage payments.

If your ex-spouse is on the mortgage with you, there are a couple of ways to remove their name from the mortgage:

• Release of liability: This is a document that releases a borrower from their obligation to pay back the home loan. You can ask your lender or servicer if they offer this.
• Refinance: When you refinance, the former spouse remaining on the mortgage needs to qualify for the new loan using only their income and assets. They also might need to make sure that their lender considers their alimony and child support payments (if they’re receiving them) to get the refinance approved.

Names on the title

The names on the home’s title, on the other hand, show who legally owns the home. It’s possible to be on the title without being on the mortgage. For example, when looking for a mortgage, if one of you didn’t have income, it may have made sense for only the income-earning spouse to apply.

If your ex-spouse is on the title to the home, removing them from the title is only a matter of paperwork. There are two ways to go about doing this:

• Quitclaim deed: You can have your ex-spouse sign a quitclaim deed, which will transfer their ownership of the property to you. You’ll need to do this to refinance the home.
• Home sale: If you can’t get a release of liability or qualify for a refinance without your former spouse, then an easier path may be selling the home. Selling the home allows you to easily split the proceeds of the sale. That way, you can divide your assets and move forward.

Debt liability when you refinance your mortgage after divorce

Your divorce decree doesn’t affect your liability for debt. Divorce decrees are issued by the courts at the end of divorce proceedings and state the division of community property. However, your lender is not legally required to take any action as a result of your divorce agreement. This means they can still hold you and your ex-spouse liable as long as both your names are on the mortgage.

The bottom line: Refinancing after divorce can be helpful

A refinance is a tool you can use to release a former spouse’s liability from the loan or divide your equity. If you decide that a refinance is right for you, you can get started online with Rocket Mortgage. Fill out an application to see your mortgage options and get an instant approval decision, putting you one step closer to moving on.