Breaking up the mortgage after divorce

Loan assumption

Those who are determined to keep the house, but don't want to spend the money on a refinance, may also consider a loan assumption. They're rare these days, but it doesn't hurt to try. Depending on your loan, some lenders may let one spouse assume the mortgage. The spouse would still have to prove sufficient income to make the monthly payments.

"There are still some FHA loans that are assumable, but loan assumptions are few and far between," Conarchy says. "And with rates this low, you would have to consider the higher interest rates you'd be assuming."

Staying married to the mortgage

If you or your former spouse can't assume the loan, can't refinance, can't sell the home and don't have the money to pay off the mortgage, you'll have to come to an agreement. You can leave the mortgage as it is, and try your best to ensure your ex keeps up with the mortgage payments.

This is a risky approach because if the ex-spouse stops paying the mortgage, the credit records of both borrowers will become tainted, Conarchy says.

Finkel also doesn't recommend staying married to your mortgage when you divorce your spouse. But if there's no other resolution, at least add some layers of protection to the agreement, he says.

"For example, if the husband is supposed to be making alimony to the wife, he'll pay the mortgage directly," he says. And the agreement should spell out that if the spouse who keeps the house misses a mortgage payment, the house has to be sold or refinanced.

Can you get a mortgage after the divorce?

The divorce settlement and decree must spell out that the mortgage payments are the sole responsibility of the spouse who stays in the house. That's important because when you apply for a mortgage in the future, you will need to show lenders that settlement, as the mortgage will continue to show on your credit report.

Depending on the lender and what type of mortgage you apply for, you may be asked to submit cancelled checks from your ex-spouse showing you're not the one making the payments, says Matt Hackett, underwriting manager at Equity Now, a mortgage bank in New York City.

If you apply for a loan that will be sold to Freddie Mac, you'll have to submit 12 canceled checks unless you have transferred the title of the property to your ex -- which you shouldn't do since you are technically still liable for the debt on the house. Fannie Mae is more lenient on the rule and accepts the divorce decree as sufficient proof.


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