Refinancing After Divorce: Here’s What You Need To Know
Victoria Araj3-minute read
October 13, 2022
If you’re going through a divorce, there’s a good chance you’re already feeling emotionally taxed. Add in the stress of legal proceedings and the necessary mountains of paperwork, and things can get overwhelming fast.
If you and your ex-spouse are dividing up shared property 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.
Refinancing Your House After A Divorce
To understand whether you need to refinance after a divorce, it’s important to note the differences between the names on your home’s mortgage and the names on the title.
Names On The Mortgage
The names that are 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 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: First, you can ask your lender for a release of liability. This is a document that releases a borrower from their obligation to pay back the home loan. However, there’s no guarantee that your mortgage lender will issue one. Many, including Rocket Mortgage®, won't do this.
- Refinance: If you can’t get a release of liability, then the only other option is to refinance your mortgage on your marital home. When you do this, the spouse remaining on the mortgage needs to qualify for the new loan using only their income and assets. The remaining spouse might need to make sure that their lender also 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, if one of you didn’t have income at the time you got the mortgage, then 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 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.
Reasons To Refinance After Divorce
There are a few reasons why it may make sense to refinance your home after getting divorced. Let’s take a closer look.
Purchase A New Home
As mentioned above, a refinance is one way to remove someone’s name from the mortgage. This protects the spouse who no longer has ownership interest in the home. And it can be an important step if that spouse plans to purchase a house after the divorce and take on a new mortgage.
Removing a 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.
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.
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. With a cash-out refinance, you could get money from the equity to pay your ex-spouse for their share of the home.
An Important Point About Debt Liability
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 May Be Necessary
A refinance is a tool you can use to release one 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. Just fill out an application to see your mortgage options and get an instant approval decision, putting you one step closer to moving on.
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