Divorce comes with its fair share of hurdles, and one of the toughest can be figuring out what to do with the family home. If you’re left wondering, “What happens if I can’t refinance after divorce?” you’re not alone. But the good news is that you have options, and this article is here to lay them out for you. Let’s get right into it.
Dealing with Joint Names on Mortgages
When both you and your ex-spouse’s names are on the mortgage, it means you’re both on the hook for it. Hence, this joint responsibility sticks unless you take steps to change it. With this, there are a couple of ways you can go about this, including:
- Refinancing: This is the most common route. By refinancing, you’re essentially taking out a new mortgage to replace the old one. In this process, only your name will be on the new mortgage, freeing your ex from any obligations.
- Release of Liability: This is a formal document that gives one person the green light to be free from the mortgage obligation. You’d approach your lender for this. But a heads up – it’s not always a sure shot. Lenders might be hesitant and may not always grant it. If that’s the case, then refinancing becomes your go-to option.
What Happens if I Can’t Refinance After Divorce?
It’s more common than you might think to have trouble qualifying for a new loan to refinance your home after a divorce. But armed with a bit of knowledge, the process can be easier. Here’s what you should know:
What Lenders Look At
First and foremost, you should know what lenders look for so you can take steps to get prepared.
- Credit Score: Your credit history matters – a great deal! Most lenders want to see a credit score of at least 620 before they even think about giving you a new loan offer.
- Debt-to-Income Ratio (DTI): This is a simple calculation that is found by dividing your total monthly debts by your monthly income. Lenders prefer this number to be no more than 43%, as anything higher can be a red flag.
- Assets: The more, the merrier. But it’s not just about quantity; it’s about stability and value as well.
Now, even if everything checks out and you get the green light for refinancing, there’s something else to keep in mind: market conditions. If they aren’t great, you might end up with a higher interest rate than you’d like.
Using a Quitclaim Deed
If you manage to secure refinancing through a different lender, there’s another step: getting a quitclaim deed. This is paperwork that your ex will fill out, essentially saying they’re giving up any rights to the property.
Here’s how a quitclaim deed works:
- Both of you head to the new lender’s office.
- Your ex signs the quitclaim deed form in front of the loan officer.
- The loan officer notarizes it. Just like that, your ex is officially out of the picture when it comes to the property deed and mortgage.
If Refinancing Doesn’t Work Out
Sometimes, things just don’t go as planned. If you can’t refinance and your lender won’t let you off the hook, selling the house might be the next best step. Before making any moves, it’s a good idea to check your home’s current market value. Knowing what it’s worth can help you decide if selling is the right call.
Whose Responsibility is the Mortgage?
When two people buy a property together, both parties are responsible for mortgage payments, even if they get divorced later. Furthermore, even if they agree that one person will make the payments, the mortgage company will still hold both of them accountable. This means that if one person misses a payment or makes a late payment, the lender may take action against both of them. And yes, even if they have a divorce decree that says otherwise.
Does Divorce Impact Credit?
A common concern during this already stressful time is how these mortgage complications might affect your credit score. Even if your ex has agreed to make the payments, your credit can be harmed if they default. To protect yourself, consider including a provision in the divorce decree that gives you the authority to sell the house if your ex defaults or delays payment.
Consider a Home Buyout
If refinancing is not an option, a home buyout may be the solution for you. This involves you paying your ex their share of the home’s equity minus the remaining mortgage balance.
Here’s how a home buyout works:
- Get your home appraised to find its current value.
- Subtract any outstanding mortgage to find the total equity.
- Split this equity between you and your ex.
For instance, let’s say your home is valued at $600,000, and there’s $100,000 left on the mortgage. That leaves $500,000 in equity. With both of you having a stake in the house, you’d each claim $250,000 of that equity. So, if you’re going for a buyout, you’d pay your ex their $250,000 equity plus the remaining mortgage amount, totaling $350,000, to fully claim the house.
If All Else Fails – Sell the Home
When you’re faced with the challenge of figuring out what to do with a home post-divorce, one clear-cut option is to sell it. Here are some ways you can approach this:
- Traditional Real Estate Agent: This is the classic route. An agent will list your house, market it, handle showings, and negotiate on your behalf. It might take a bit longer, and you’ll pay a commission, but you’ll have someone guiding you through every step.
- For Sale By Owner (FSBO): This is a more hands-on approach. You’ll handle the marketing, showings, and negotiations yourself. It might save you on commission, but it’ll require more effort on your part.
- Auction: It’s a faster way to sell. Set a date, have potential buyers come in, and let the highest bid win. It’s quick, but you might not fetch the highest market price.
- Cash Home Buyer: For those wanting a speedy and hassle-free sale, this is an option to consider. Cash home buyers will purchase your home “as is,” often closing the deal in a matter of days. There’s no need for repairs, showings, or waiting for buyer financing. They assess your property, make an offer, and if you agree, you get cash.
The key here is that the route you choose should depend on your needs and priorities – whether it’s speed, maximizing profit, or simplicity.
Why a Cash Home Buyer Might Be Your Best Option
When dealing with the aftermath of a divorce, the last thing many homeowners want is added complexity. And we all know that selling a home the traditional way can bring its own set of challenges. Here’s why opting for a cash home buyer could be your best choice:
- Speed is Key: One of the standout benefits of a cash sale is how quick it can be. Instead of waiting for a buyer to secure financing, a cash buyer can close the deal in as little as a few days.
- Simplicity: No need for house showings, negotiations, or waiting on buyer contingencies. The process is straightforward.
- As-Is Purchase: Most cash buyers will purchase your home in its current condition. This means no repairs, no deep cleaning, and no need for staging.
- Certainty of Sale: Traditional sales can fall through for many reasons, including financing issues. With a cash buyer, once the offer is accepted, it’s almost certain the sale will go through.
- Reduced Costs: No need to invest in home repairs or renovations before the sale. Plus, there are no agent commissions to worry about.
- Less Stress: Going through a divorce can be emotionally taxing. The less hassle in selling your home, the better. Cash sales are generally smoother and involve less paperwork.
- Flexibility in Terms: Many cash buyers can offer flexible terms, such as a rent-back agreement, allowing you more time to move out or find your next home.
Ultimately, choosing a cash home buyer is the best option for a quick and easy solution, especially in a situation where emotions and legal matters are involved.
Take Control of Your Future Today!
The bottom line is that selling your home doesn’t have to add stress to an already challenging time. Reach out to us, and, as your trusted cash home buyer, we’ll guide you through a smooth sale, allowing you to focus on what truly matters – starting the next chapter of your life. So, give us a call today, and let’s take the next step together.