Breaking up the mortgage after divorce
Love fades away. Marriages end. But the mortgage you agreed to pay when you were in love remains your responsibility -- until you find a way to divorce it.
The slow housing market and tight lending requirements represent a major obstacle for couples who want to untie the knot these days. Before the market crashed, divorcing couples could easily sell their homes, split the equity and purchase other homes for themselves. But times have changed.
"I remember 10 or 15 years ago, we were dividing up assets, and now we are dividing up liabilities," says Barry Finkel, a divorce attorney in Fort Lauderdale, Fla.
Usually, the mortgage is the biggest liability the couple has to split. And divorcing your mortgage isn't easy.
In the eyes of the mortgage lender, you remain married and liable for the mortgage unless you sell the house or refinance. For those who can't do either, there are options that should be explored carefully.
Whether going the traditional route or considering alternative ways to deal with your mortgage in a divorce, couples need to put their emotions aside and focus on the finances, says Chris Remedios, a certified divorce financial analyst at Financial Connections Group in Corte Madera, Calif.
"When people go through a divorce, they feel like they have given up so much, they can't stand one more thing," she says. "My job is to help them get past that emotional place and show them how this works for them in the long term."
Selling the house
If you can sell the house, that's the easiest way to put this joint debt behind you, says Ed Conarchy, a mortgage planner at Cherry Creek Mortgage in Gurnee, Ill.
"This house was meant for the two of you, but it ain't the two of you anymore," he says. "Sell it, pay off the mortgage and move on."
In the current market, that's easier said than done, especially for those who owe more on their mortgages than their houses are worth. They would have to either pay off the difference on the loan or opt for a short sale.
As with any other short sale, the credit score of both borrowers would be affected, Conarchy says. And the couple might still be liable for the difference between what the house sells for and what's owed on the mortgage, unless the bank agrees to release the borrowers from the liability at the time of the short sale.
Should you (or can you) keep the house and refi?
Refinancing the loan under the name of one spouse is another easy fix -- under these conditions.
- The couple is not underwater on the mortgage.
- One spouse has sufficient credit and income to qualify for a refinance.
- The other spouse agrees to let go of the house.
But often, the wife or the husband can't afford to keep the house with one income, don't qualify to refinance the loan or both.
"You need to ask yourself: Can you afford (to keep) this house, and should you keep this house?" says Conarchy. "Think of it this way: If you were single, would you buy this home?"