This article was reviewed by Marguerita Cheng, a member of the Finder Editorial Review Board and award-winning advocate for ethical financial planning for over 20 years.
Divorce is never easy, but refinancing the home you once shared with someone can help you move on with a fresh start. Refinancing allows you to take your ex-spouse’s name off the loan, protect your credit and potentially lock in a lower interest rate.
Here are five steps to refinancing a house after a divorce.
1. Determine who gets the house
Unless you’ve reached an agreement with your ex-partner about who will get the house, the matter will be referred to a court of law. Depending on the state you live in, any joint property will be divided using either the community property or equitable distribution (“common law”) approach. You can’t refinance until this is settled.
2. Find out if you qualify for a mortgage refinance
If you’re ready to refinance, the first step is to find out if you qualify. Apply online from a lender’s website or call a loan officer directly to get prequalified. Depending on the lender, provide estimates of your numbers or actual documentation to help speed up the process.
3. Compare multiple lenders to find the best rates
When refinancing, get at least three or four quotes to see the rates you qualify for and to compare lender costs and fees. Every lender is different, and you may be surprised to discover how much you can save on rates and closing costs simply by shopping around.
Also, while you’re not obligated to refinance with your current lender, they may be willing to give you a lower rate or closing cost discounts to keep your business — so it’s worth checking with them too.
4. Get your documentation together
To get final approval for your mortgage refinance, you’ll need to provide copies of your financial documentation to your lender. Depending on the lender, you can upload copies or link to your bank and tax accounts.
Here’s a typical list of what you’ll need:
- Pay stubs for the past 30 days
- Last two years’ tax returns and W-2s, or 1099s for self-employed persons
- Recent bank statements, including for checking and savings accounts
- A list of your debts and liabilities, including child support
- Proof of an excellent history of repayment on your existing home loan
- Records showing you have funds to pay out your ex-partner if you don’t have enough equity in the home
- A recent property appraisal
Note that depending on how long ago you originally purchased the home, you could face more strict — and lengthier approval times — given changes to lending conditions since the start of the pandemic.
5. Remove your ex-partner’s name from the title
When refinancing a house after divorce, you want to make sure that your ex-partner’s name is no longer on the title — by filing a quit claim deed. Although, if you’re refinancing the mortgage into your name, the title company should do this for you.
How can I take possession of an existing mortgage?
If you don’t want to go through the process of refinancing, some lenders will consider allowing you to assume the existing mortgage outright in what is known as a loan assumption. A loan assumption is when you take over the mortgage and its payments and your ex-partner’s name is removed from the mortgage.
Not all lenders offer loan assumption, but if yours does, you may need to prove you can financially cover the monthly mortgage. Keep in mind that loan assumptions aren’t free and can cost $500 or more. Seek the help of a lending professional before deciding on this option.
There’s also the potential option of loan modification to remove your ex-spouse’s name from the mortgage. A loan modification is when a lender changes your loan’s terms to lower your monthly payment.
Typically, this option is only available if you’re experiencing financial hardship, but this may be the case after a divorce. While it may not be granted, it’s worth asking, especially if your finances have taken a hit.
How important is my home’s current value when refinancing?
If your lender estimates your property value at a lower figure than anticipated, they could decline the loan. In that case, you may be prevented from dividing the property successfully.
Unfortunately, there is no way to control how a lender will estimate your property value. Before you submit your refinancing application, ask an experienced mortgage broker if they can obtain different estimates from various lenders. With this information, you can apply with the lender that has the most satisfactory estimation for your property. But be aware that requesting too many credit inquiries could possibly damage your credit score, making it more difficult to qualify for a loan.
How much am I able to borrow?
If your history of repayment has been excellent and you meet your lender’s guidelines, it could be possible to get a loan for 95% of the value of your property. You will have to pay private mortgage insurance (PMI) if you borrow more than 80% of the value of your property.
How to remove someone’s name from a property deed
Can I use child support payments as income to get a home loan?
While some lenders will accept your child support benefit as income when applying for a mortgage, others consider child support payments an unreliable source of income.
Acceptance of child support as income could further depend on:
- The age of your dependents. Most lenders require proof that you will be receiving child support for at least three years. That means if your children are 15 or older, your child support payments may not be accepted as income.
- How long you’ve received child support. Lenders will typically request at least six months of child support statements.
You’ll need to speak to your lender or mortgage broker to find out whether your child support payments are acceptable income.
What if I’ve neglected loan repayments?
Amid the lengthy proceedings and emotional chaos that comes with divorce, it’s understandable that you could miss a payment or two on your mortgage. But if you plan to refinance or assume your existing mortgage, it’s a good idea to continue paying your share.
Skimping on payments doesn’t reflect well on your credit history and could make it harder for you to apply for refinancing and complete the settlement. Most mortgage lenders won’t refinance a home loan unless the borrower can show flawless repayments for six consecutive months.
Will I have to pay taxes to transfer ownership?
When transferring ownership of a property, it’s likely that both you and your spouse will pay a transfer tax. The tax you’re charged will depend on your county, but it tends to be 1% of the home’s purchase price. Keep in mind that the county could reassess the value of your property at the time of transfer, resulting in higher property taxes for the spouse taking ownership of the home.
To learn the specific tax you’ll be responsible for, consult your lender or mortgage broker.
How to transfer home ownership after a divorce
Seek the assistance of a professional
As with all real estate decisions, talk to your family law attorney, a tax professional or another expert to determine your specific responsibilities when assuming financial responsibility for your property during or after your divorce.