Divorce Mortgage

There’s a common misconception that a quitclaim deed eliminates responsibility for the mortgage. It does not. There are two separate issues: who is on the title (owns the property), and who is on the loan (pays the mortgage). A quitclaim deed signed by your ex gives you their 50% title (ownership) rights to the property, but it doesn’t affect the loan.

Here’s an example: you lend John and Sue, a married couple, $100K to buy a house, and they both promise to pay you back. They divorce, and Jeff quitclaims his ownership to Sue. She now owns the house, but they are both still responsible for the loan.

It’s possible, but there are important considerations.

First, if your name is on the mortgage, you must qualify with the full debt for your current home since there is no divorce decree assigning ownership of the debt.

Second, your spouse will have a marital interest in your new property because you are still married. Once the divorce is final, your ex-spouse will need to sign a quitclaim deed granting you their interest in your new property.

If one spouse is keeping the home and the parties cannot agree on a value, there are a couple of ways to determine it:

TIP: If there’s a disagreement on the value, but the spouse keeping the home is refinancing it, the mortgage company will order an independent appraisal for the refi. This will save an additional appraisal fee.

Obtain a comparative market analysis (CMA) from a real estate agent. This approach may include pending, listed, and sold properties, but unlike an appraisal, it doesn’t include a detailed evaluation of your home. In a rapidly appreciating market, it may result in a higher value. Most agents don’t charge for a CMA, but because the value is typically expressed as a range rather than a single dollar amount, it may not resolve the disagreement. Pay for an independent appraisal. This is the definitive method and provides a specific number. However, appraisals are not an exact science, and you may still disagree on the home’s value.

In certain scenarios, the language in the decree is critical. If you want to keep the home and refinance, the decree may determine if a refinance is possible. The right language may help you obtain a lower interest rate, or allow you to take out equity to pay a marital settlement. If your spouse is keeping the home and you want to close on a new home before your ex refinances, you’ll need language to remove the current mortgage from your debt ratio so you can qualify for your purchase.

Yes, but you must have received the funds consistently over a specific period of time (depending on the loan type), and you must document that the funds will continue for a minimum of three years after the loan closes.

There are many ways to divide equity. The most common way is for the retaining spouse to refinance and take out a portion of the equity to pay the exiting spouse. If mortgage rates are unfavorable, and there’s no need to remove a name from the loan, it may be better for the retaining spouse to take out a home equity line of credit (2nd mortgage).

When homeownership and a mortgage are part of a divorce, it’s complicated. Underwriting guidelines are different, timing of a purchase or refinance can be critical to both spouses, title issues are critical, and the divorce decree needs specific language for certain mortgage scenarios. Experience is essential to understanding and navigating these issues. Very few loan officers know and understand these differences because they don’t come across them often enough. It’s like trusting an autobody technician to fix your engine just because they work on cars!