Refinancing Your Home in Your Divorce

One of the biggest questions divorcing couples need to decide is what to do with the family home. Often, especially when there are minor children involved, the parent who has custody of the children through most of the week will want to keep the house. Many times, this is the mother who has stayed home with the children for a portion of time and therefore has not dedicated her life to a career. This can make keeping the house very difficult. 

There are a number of questions to consider when deciding whether you can keep the house and how and when it is best to refinance. We recommend talking to a real estate agent or financial planner who is experienced in divorce transactions and can help you with the refinancing or resale process. 

Questions to ask before refinancing or selling

At the Law Office of Elissa C. Goldberg, located in Doylestown PA, we focus our practice on divorce mediation and collaborative law, so we often discuss these issues in our meetings with divorcing couples. In mediation and collaboration, our goal is to come to an agreement that is best for all members of the family. 

The first step in determining what happens to the house is to have it appraised. The next is to determine how much it would cost to keep the house. This includes all the expenses:

• Mortgage
• Utilities, trash removal, and other regular bills
• Taxes and insurance payments
• Seasonal expenses such as lawn care, snow removal, gutter cleaning, etc.
• Estimate of unexpected expenses, such as repair and upkeep, new appliances, etc.

Once you have a clear picture of how much it actually costs to keep the house, you need to ask yourself the big question: Can I afford to keep it? Do I have the income and the credit score that a lender would accept in order to allow me to refinance? If not, is there someone who would be willing to cosign with me?

When to refinance

If you’ve determined that you still want to keep the house and you will be able to afford it after the divorce, it’s time to consider the best way to refinance. Both the deed and the loan must be changed to reflect only the name of the spouse who is keeping the house. It is important to do both as close to each other as possible because it is possible for a person to not own a house (name off the deed) but still be responsible for the loan, or for a person to have no financial responsibility (name off the loan) but still own the house (name on the deed).

If you have not yet filed for divorce, this is the best time to refinance. It is easy to remove one spouse’s name from a deed and from a loan. While there are specific procedures and forms that must be completed, it is in essence a matter of both spouses, who are still legally married and have not applied for divorce, agreeing that the deed and the loan should be in only one spouse’s name.

Generally, a cash-out or buyout amount is determined to compensate the spouse whose name is being removed. This amount is generally calculated as a portion of the increase in value of the home since purchase. This amount does not have to be given in cash – it could be used in the divorce agreement in exchange for another commodity, such as a portion of 401K or a summer home. 

If you have filed for divorce but have not settled yet, refinancing can be difficult, especially if you are expecting to count spousal support or child support as part of your income. Lenders generally require a six-month history of income or longer, so in this case, you may not be able to refinance before you’ve been divorced for at least six months and have evidence of payment. You may also need time to build your credit score. If you can afford the house without support payments, you can proceed with the refinance and deed transfer. However, in these cases, often a quickclaim deed or interspousal deed is used to quickly transfer deed claims. The buyout value of the house can be used in the negotiation of the settlement, as stated above. 

If you wait until after the divorce, you will want to move quickly. The ex who no longer has the house will certainly be anxious to not be financially responsible for it anymore. Your income and credit score will determine your ability to refinance, and you’ll need to remove the ex’s name from both the deed and loan simultaneously, or as closely as possible. The divorce settlement should have covered the buyout for the spouse losing the property.

Getting help

Refinancing or selling a home is probably the second-most complicated and stressful step in divorce, after the issues involving the children. At our law offices, we specialize in family law and work hard to help couples come to agreements that benefit both spouses as well as any children. Contact us today at our Bucks County office at (215) 345-5259 for a complimentary phone consultation.