Equity Buyouts After Divorce: How to Keep Your Home. Why an Owelty Lien is the Best Path
Divorce is one of life’s most difficult milestones — and deciding what happens to your home can feel overwhelming. For many Texas homeowners, the marital residence is not only the largest financial asset but also the emotional center of family life. Selling the house isn’t always the best option, especially when children, community ties, and stability are at stake.
That’s where an equity buyout mortgage — and in Texas specifically, an Owelty lien — can be a game changer. This approach lets one spouse stay in the home while paying the other their fair share of the equity, often with better loan terms and access to more equity than traditional cash-out refinancing. Below we explain exactly how it works, common questions people are searching for, and why working with an expert — like Richard Woodward, a divorce lending specialist — matters.
What Is an Equity Buyout Mortgage?
An equity buyout mortgage is not a unique loan product; it’s the strategy of refinancing your home so that one spouse buys out the other’s share of the equity and becomes the sole owner and borrower on the mortgage and title. Most often this happens when:
- One spouse keeps the home after divorce
- The other spouse is compensated fairly for their share of the equity
- The departing spouse is removed from both the deed and the mortgage as ordered by the court.
This is typically accomplished through a refinance mortgage, where the new loan pays off the old one and generates enough cash to satisfy the departing spouse’s equity interest. Paying off the existing mortgage with a refinance is required if both parties are on the mortgage. The divorce decree does not remove the ex-spouse from the mortgage and not doing so can cause issues like credit reporting (if they miss a payment, your credit score takes a hit) and debt to income.
However, in Texas, there’s an important tool that can dramatically improve the outcome. Surprisingly, most loan officers and banks are not aware of this tool and will cause you to pay higher interest rates due to the improper mortgage structure.
Why an Owelty Lien Is So Valuable in Texas and in other States.
In Texas, an Owelty lien (also known as a lien for owelty of partition) is a legal instrument used in divorces and other ownership separations to divide equity without selling the home. It lets one spouse keep the house and buy out the other’s interest by refinancing the home with the lien in place. This structure provides some key advantages:
- Greater Equity Access Than Cash-Out Refinance
Under Texas constitutional homestead rules (Article XVI, Section 50(a)(6)), standard cash-out refinancing is capped at 80% of the home’s appraised value. An Owelty lien can allow refinancing up to roughly 95% of value, providing more equity access to complete the buyout without needing liquid cash. - Better Loan Terms and Lower Rates
Because an Owelty refinance is treated as a rate-and-term refinance instead of a cash-out refinance, borrowers can often secure lower interest rates and fewer restrictions than with a typical Texas cash-out loan. - Fair, Court-Ordered Equity Payoff
The Owelty lien must be included in the divorce decree and recorded with the county. This means the departing spouse has a legally secured right to payment, and the refinancing spouse can confidently move forward knowing the terms are enforceable. - Stability for Your Family
Using an Owelty lien helps keep children in their familiar home and neighborhoods. It avoids the disruption and costs of selling and moving during an already challenging time.
How an Owelty Buyout Mortgage Works
Here’s a simplified example that shows the power of this strategy:
- Home value: $500,000
- Mortgage remaining: $375,000
- Equity: $200,000
- Spouse B’s half equity: $100,000
With an Owelty lien included in your decree, the spouse keeping the house could refinance up to about $475,000 (95% LTV), covering the mortgage balance and the $100,000 buyout. Without the Owelty lien, a Texas cash-out refinance would likely cap at $400,000 (80% LTV), leaving a $75,000 shortfall and potentially forcing a sale.
Common Questions Homeowners Are Asking
These are some of the equity buyout and divorce mortgage questions people are searching for online right now:
Can I use an Owelty lien if I’m not married?
Yes. While most common in divorce cases, an Owelty lien can be used in any situation where co-owners want to divide equity and one party keeps the property. What matters is that the lien is legally documented and enforceable.
Is an Owelty lien just a loan?
No. It’s a court-ordered lien on the property that secures payment of equity. The actual mortgage is the refinance loan; the Owelty lien provides the structure for paying the other spouse.
What happens if an Owelty lien isn’t in my divorce decree?
Without it, the lender may treat the refinance as a standard cash-out transaction — which means higher costs, stricter caps on equity access, and often an inability to borrow enough to complete the buyout. However, your divorce decree doesn’t have to specifically mention the Owelty lien, only the amount of the equity division in dollar amount or a percentage of equity based upon the appraisal. Richard has title attorneys that can help write the actual Owelty Lien post-divorce for you.
Why You Need an Expert Who Understands Owelty Liens
Owelty liens are not widely understood outside of specialized divorce lending circles. A title company, attorney, or lender who has never handled an Owelty refinance can easily misclassify the transaction, resulting in:
- Inability to access the equity you need
- Higher rates and cash-out restrictions
- Delays or failed refinances at closing
At The Richard Woodward Team NEXA Lending, we specialize in divorce mortgage strategies — especially Owelty lien buyouts. We work with attorneys, title companies, and multiple lenders to make sure the lien language, refinance structure, and financing terms all align for success.
Next Steps: Protect Your Home and Your Future
If you’re considering a home equity buyout following divorce, an Owelty lien could be the key to keeping your home with the best possible mortgage terms. Planning early — ideally before finalizing your decree — gives you leverage to make informed decisions and secure the financing you need.
