In a divorce, the marital home is often one of the most valuable marital assets that the parties have. Typically, the parties also have a mortgage on the marital home with a balance due.
To resolve a divorce with a martial home, there are typically three possibilities. Either the husband retains the home, the wife retains the home, or the parties sell it.
In the first two scenarios, the mortgage balance is still due and owed. If the home was bought during the marriage, it is likely both husband and wife are listed as debtors on the mortgage. As part of a divorce settlement, whoever keeps the home is typically responsible for making the mortgage payment. They also make all the utility payments.
One piece in resolving issues with the marital home is removing the spouse who is not keeping the home from the mortgage. It is critically important to protect the credit of that spouse in case mortgage payments are not made. It can also help the other spouse with the ability to get credit to buy a home of their own.
Refinancing during divorce
Many are familiar with refinancing their mortgage to remove the name of the spouse in a divorce. However, when a refinance takes place, closing costs come into play that can eat into the equity. The closing costs of a home-refinance generally include several different items. They are credit fees, appraisal fees, points (which is an optional expense to lower the interest rate over the life of the loan), insurance and taxes, escrow and title fees, and lender fees.
If the party keeping the house has good enough credit, they might consider an assumption agreement versus a refinance. By doing an assumption agreement, the party keeping the house does not lose equity through closing costs. At the same time, they are able to get the spouse who is not keeping the house off the mortgage.
An assumption agreement also allows the party retaining the house to keep the existing loan rate, repayment period, principal balance, and other terms intact. The party who keeps the house assumes the rights and obligations of the original loan without a new mortgage.
Having said that, not all mortgages are assumable. However, government-backed loans, like FHA, VA, and USDA loans, will generally allow for assumptions. For any party going through a divorce who is considering an assumption agreement, it can be critical to speak to the loan agent and/or mortgage company.
If you are going through a divorce where there is a marital home, Stange Law Firm, PC can help. You can reach us at 855-805-0595.