||Ask Dr. Don
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?
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.
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
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
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.
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
-- Posted: Nov. 12, 2001