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Refinancing after a divorce

Dear Dr. Don,
I am recently divorced. My ex-husband signed a quitclaim deed so that I am now sole owner of my home. I have also changed my name back to my maiden name. I would like to refinance my mortgage to take advantage of the lower interest rates, but am concerned that a bank is going to question all these changes. I have been making the payments by myself and they have been on time for over 18 months. Any suggestions that will help me untangle this ball of yarn?
Thank you!
Pam Percentage

Dear Pam,
It doesn't sound like you're dropping any stitches, but let's see what the good doctor can do for you.

First, the bank isn't going to go into apoplexy over you taking back your name. It shouldn't be a problem with the credit bureau either, but I'd recommend that you get a copy of your credit report and make sure the name change went through OK and that the information on your credit report is accurate.

While you're doing that you might as well check on your credit score too. Any of the three major credit bureaus can provide you with a credit report and a credit score for $12.95 or less. There's no real need to get all three bureau's reports.

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According to Nolo.com, a quitclaim deed transfers whatever ownership interest you have in the property. It makes no guarantees about the extent of your interest.

Quitclaim deeds are commonly used by divorcing couples. One spouse signs all his or her rights in the couple's real estate over to the other. This can be especially useful if it isn't clear how much of an interest, if any, one spouse has in property that's held in another spouse's name.

That doesn't mean that your ex is off the crochet hook when it comes to payments. Regardless of the divorce decree, if the mortgage was a joint obligation prior to the divorce, it continues to be a joint obligation. (That's also true with credit cards.) The FTC has a pamphlet available online about credit and divorce that provides additional information.

The lender's biggest concern in refinancing your mortgage will be your income history and current employment. No late pays over the last 18 months is a good start, but that's a credit history you share with your ex-husband.

Lenders typically like a payment to income ratio of 28 percent and won't lend if the mortgage payment is more than 33 percent of your monthly income. The more equity (ownership interest) you have in the home, the easier it will be to find financing. Bankrate's How much house can you afford? calculator can help you determine if you're in the ballpark for getting a loan on your income. (Just list your equity as the down payment amount.)

If you can't qualify for a refinancing on your own, then you should put some serious thought into the idea of selling the house and moving into a home you can afford. Keeping the mortgage in both your names has worked for 18 months, but isn't a long-term solution.

As always, you can shop mortgage rates on Bankrate. You can also use its refinancing calculator to see how much money you'll save with the new mortgage loan.

-- Posted: Nov. 12, 2001

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See Also
Refinancing: Get it while it's hot
Cash-out refinancing vs. home equity loans
When refinancing activity booms, watch out for mortgage tricks

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