Divorce is often a difficult and stressful process, especially when there are assets to split such as a house. In this second post, we dive into exactly how to navigate a refinance mortgage process in uncertain times.
What To Do and Avoid with Credit:
The process of refinancing a home during a divorce is very similar to getting approved for a loan. In other words, it is vital that both you and your soon to be ex-spouse continue to maintain healthy credit habits. This means both of you should keep paying bills on time, maintain the same spending habits (no large purchases), and do not open or close any credit card accounts.
Some couples decide to refinance a joint mortgage into one of the spouses’ names during the divorce process. The benefit of this is that it releases the spouse whose name is being removed from the loan from financial responsibility for the mortgage and grants him/her freedom to afford housing elsewhere, while having the option of remaining on title and maintaining legal ownership or having your equity ownership bought out with proceeds from a cash-out refinance and being removed from title altogether.
Once you, your partner, and the mediator decide who’s keeping the house and who is moving on from it, the person keeping the house should get started with the loan application process. Your lender will work with you and keep the process in line with the divorce mediation. Just like the legal process of separation, our refinancing runs parallel with the marriage settlement agreement – the difference being through mediation – we can wrap it up much faster and save you thousands of dollars in the process.
What We Need in Order to Refinance Your Loan:
Once you and your spouse come to an agreement on who is keeping the home, we are able to discuss the missing variables needed in order to finish the loan successfully. The biggest variable within the process is child and spousal support.
Aside from utilizing a refinance to remove one party from the title, we can also use it to carve out finances needed for the settlement through the equity in the house. If one spouse is required to pay out the other in child or spousal support, we can roll that into the monthly mortgage payment by utilizing the equity in the home.
Another option would be for the spouse that’s keeping the house to use a cash-out refinance and utilize some of the equity to buy their partner out of the house altogether. This is a great option to negotiate for one lump sum payment rather than monthly payments spread out until the amount agreed upon is paid in full.
What to Expect at the End of the Process:
The best part about refinancing through mediation is we aren’t required to wait for a divorce decree in order to start the process. As your lender, we work with both spouses through the mediator with confidence knowing there is a third party providing support for a fair decision-making process.
Once the refinance is ready to be wrapped up, we will prepare the grant deeds to show the new vesting with the proper name(s) on (or off) title to the property. This is important because unless that partner’s name is also removed from the title, they can still benefit from the sale and equity of the home. We can show the updated marital status to reflect one owner through the new grant deed and vesting of the property once the divorce is finalized.
If you are considering mediation for your divorce and loan process, please give us a call at (760) 930-0569 and one of our loan officers will assist you.