Breaking Up (with your mortgage) Is Hard To Do
3/11/2017 | Kaya Wittenberg
Going through a divorce can be an emotional and trying time, and dealing with things like custody (if there are kids involved) and handling who gets what when it comes to property and belongings can make it even messier.
Sell The Home And Move On
Many people ask what they can do to get out of a mortgage in the event of a divorce. They no longer live in the house and want to be freed from the responsibilities that come with paying for a home they no longer occupy. Selling the home, splitting the equity and using that money to buy new houses as individuals is usually the “easiest” and most clean-cut way to deal with a mortgage after a divorce.
However, many families can’t afford to sell their current home, or don’t want to, especially if they owe more than what it is worth. In this situation, the couple would have to agree on a way to pay off the difference on the loan or consider a short sale.
The problem with a short sale is that it can negatively affect the credit of both people involved. Moreover, the couple could still be held responsible for the difference between what is owed on the home and what it sold for. The only way to avoid this is if the bank releases all responsible parties from the liability when the short sale occurs, and this is pretty rare.
Keep The House and Refinance
If one person decides to stay in the home, they can refinance the home under their name. This can only be done if the other spouse agrees to release the house, if the person staying in the home has decent credit and proof that they have the income to make the new payments, and if the couple is not currently underwater on the mortgage. This option usually works best for couples that are going through a relatively amicable divorce and can work together and agree on this particular process.
When spouses cannot agree on the value of the home, this process gets a little trickier. In this situation, hiring a professional real estate appraiser can settle the differences and give a non-biased valuation on the home. Hiring an appraiser can cost around $450 or more, depending on the type of property, but if couples are willing to hire a joint appraiser, they can split the fees, saving both time and money.
If refinancing isn’t an option for one person in the marriage, a loan assumption is another option. In a loan assumption, one spouse takes responsibility for paying off the mortgage and the other spouse is legally released from it. This option is rare, however, because not all mortgages are assumable.
There are significant fees that come along with loan assumption but they are typically much less than the cost to refinance. In order to follow through with a loan assumption, the couple will need to provide various documents proving that the spouse staying in the home can afford to be solely responsible for the mortgage, and a proof of the divorce decree will also be required. This option may be harder for couples who live in luxury estates because assuming the entire mortgage can be a large financial burden for one person to take on.
It’s important to know that you should not count on loan assumption to “get you off the hook” when it comes to being responsible for the mortgage. That very rarely happens, but it doesn’t hurt to try. It’s important going into it knowing that your chances of being granted an assumption are pretty low.
A mortgage, like a marriage, is a major commitment that the legal system takes very seriously. Sometimes, though, getting out of a marriage can be easier than “breaking up” with the mortgage payments. It is highly recommended that couples speak with their lender, together if possible, to come up with the best and most financially beneficial option for everyone involved.