Retain the Original Mortgage
Unfortunately, this is the option that many people unknowingly make when they get a divorce. In essence one spouse agrees to keep the home, but the mortgage isn’t changed after the divorce is finalized. If this is your situation, realize that if your ex doesn’t make the mortgage payments, it can ruin your credit if your ex defaults on the loan.
Maybe you want to retain the co-ownership of the home and leave the original mortgage intact until the children are grown. Once the children are gone, the house can be sold and the proceeds can be split. To make this arrangement work, both you and your ex should be able to cooperate in such a way that the mortgage payments, taxes and upkeep are paid in a timely fashion.
Like I said earlier, this is a risky proposition. First of all, do you really want to keep that closely tied to your ex. Secondly, if your ex has any future liens filed against him/her, they can be attached to your house. This ties up the title and makes it harder to sell the house. And finally, having an existing mortgage can make it difficult to qualify for a new mortgage because it may increase your debt to income ratio. You’re better off trying some of the other divorce mortgage options below.
Sell the House.
One of the easiest ways to remove your liability from the mortgage when getting divorced is by selling the marital home. The proceeds from the sale will first be used to pay off the existing mortgage, and anything that is left over after closing costs can then be split between you and your spouse. Generally, it’s a good idea to sell the house before your divorce is finalized to prevent future opportunities to fight over the sales price. Plus, neither one of you will have to worry about the other not making mortgage payments, maintaining the house, or paying taxes and insurance.
One Spouse Keeps the Home and Refinances the Mortgage.
This is a common strategy when one spouse wants to keep the home. In this situation, the spouse who wants the house generally buys out the other spouse’s equity share and refinances the mortgage into his or her own name. If you will be keeping the house, you need to have your spouse sign a quit claim deed relinquishing his rights to the house. Better yet, your attorney can prepare a Texas Owelty Lien. This deed assigns interest in the equity to spouse exiting the marital home and allows Texas home owners to “cash out” the exiting spouse in the most cost effective way. Read more about the in’s and out’s of Texas Owelty Liens here.
If you are the spouse who will be keeping the home, it is very important that the mortgage be refinanced in your name only. As long as your name remains on the mortgage, you will continue to be liable for the mortgage payments and you will have control of the IRS tax deductions and can maintain your great credit rating.
If your divorce is not yet finalized and your ex will be keeping the home, it’s a good idea to include language in your divorce decree that your spouse will refinance the home out of your name. Ask your attorney about creating special language that protects you in the event the ex does not refinance.
If I may help with any questions at all, please feel free to reach out to me. I want to make this stressful time as easy as possible.
Richard Woodward, NMLS 217454
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Office: (214) 945-1066
Service First Mortgage NMLS 166487
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