Woops. Looks like the ‘til death do us part’ thing didn’t exactly go as planned. When a union is dissolved, there are a lot more things to consider other than who’s keeping the house and who’s moving out. Debt, support payments, attorney fees…the wheels really begin to spin when a couple decides it’s not going to work out. But when a couple buys a home and gets a home loan together, there are some important matters to address.
First, note that when two people apply for a mortgage on the same loan application, the lender uses the total gross monthly income along with joint monthly credit obligations to determine affordability. If the union decides to take different paths, the mortgage company holding the note still has a say in the matter. When a couple applies for a mortgage, they’re both going to be listed as interested parties on the title report as well as the mortgage showing up on both of their individual credit reports. But just because a couple decides to split, that doesn’t automatically mean the mortgage company agrees to let one party off the hook for the existing monthly payment.
Let’s say a couple do decide to get a divorce. They agree who will continue to occupy the property, who will continue to own it and who is responsible for making the monthly mortgage payments. They get their lawyers together, work out an agreement, it’s signed by a judge and they both go along their merry way. But the mortgage company didn’t agree with the split. Both are still on the note and both are responsible, regardless of what any agreement states. But during a split, there are ways to get one spouse off the note, leaving it to the responsibility of the other.
A judge signs the final divorce decree awarding one party sole ownership of the property while at the same time determining who will be making the monthly mortgage payments going forward. Let’s also consider the non-occupying spouse who leaves the home. That individual will still have the mortgage payments on his or her own credit report, even if the agreement states that person isn’t responsible for the mortgage. The mortgage company didn’t agree. How do you get an ex-spouse off the mortgage?
Lenders can have different guidelines but in general if the mortgage payments are made on time for the next 12 months, one ex-spouse can petition to remove the other off the note. Doing so frees up credit lines for the other party to purchase or rent another home. Until that person is off the mortgage completely, it will still affect debt-to-income ratios. If the divorce decree states who is responsible for the mortgage payments, as long as the payments are made on time for the next year, that person can be removed.
Another way to get an ex-spouse off the mortgage is to refinance the existing note. In this fashion, the person keeping the house and the responsibility for making the mortgage payments must qualify for a refinance without the benefit of the ex-spouse’s income. Sometimes this can be a challenge if debt ratios are an issue but paying off the existing note entirely and replacing it with a new one by refinancing solves this concern.
