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Dear Dr. Don,
I got divorced last year and opted to keep the house. I was supposed to refinance the house within six months but I
was not qualified due to bad credit (caused by my ex).
I continued to make the mortgage payments and am now trying to refinance again. My credit score has
gone up since I've paid off most of the debts on my own. I'm supposed to give my ex half of the equity after all bills
are paid off. I'm not sure what to do.
Do you have any recommendation of what would be the best thing to do? Is their another way of paying
him off without refinancing? I don't know much about mortgage stuff. Please help me figure this out.
-- J. Juncture
Dear J.,
Holding on to the house after a divorce is a big
enough financial strain, but the burden of refinancing
with just one income to qualify for the loan makes
it that much more difficult, especially if you
have bad credit.
Yours is a cautionary tale for divorcing
couples about why you both need to manage credit
responsibly during the marriage dissolution. The
FTC's Facts for Consumers publication "Credit
and Divorce" can help divorcing couples understand
how important this is, and how to manage their
credit during and after a divorce.
Refinancing is really the cleanest way to make this work if you want to keep the house. The current lender
doesn't have any incentive to take your ex-husband off the current note, and your ex doesn't have much incentive to get
off the deed without receiving his equity stake in the property.
A potential obstacle to refinancing as a way to solve this problem is that you need to have enough equity
in the property to take cash out to pay off your ex, while still having enough equity on your own to meet the lender's
standards for approving the loan.
The actual determination of what is a fair split can get pretty complicated.
You were supposed to have refinanced within six months of the divorce settlement. You have presumably been
making principal and interest payments over time, increasing your equity in the home. The home's value may have fallen,
however, reducing your ex's equity stake.
That reduction in equity wouldn't have impacted him as much if you had refinanced in a timely manner.
Unless you can agree on what's fair, you may need to get your lawyers involved. At a minimum, you're going
to want to work with a real estate attorney when refinancing the property.
You should at least consider the prospect of selling the house as an alternative to refinancing. It's a
hard step to take, but if you're not sure you'll be able to keep the house on your own, it would be better to get out now
and start fresh.
You didn't list the particulars of your home's value and the current equity in the home, but consulting
with a tax professional or real estate attorney would be a good idea to discuss how the capital gains exclusion on the
sale of a primary residence applies to you in the sale.
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