Divorce and Mortgages: Can One Spouse Take Over the Loan? Find Out Now!

Divorce is tough, especially when it comes to money matters. I've seen how hard it is for couples to split their assets, especially the family home. Determining what will happen with the house in a divorce is one of the toughest decisions to make. Losing the place where memories were made is very sad, but necessary.

If you're going through this, you're not alone. Many couples wonder if one can keep the mortgage after divorce.

With mortgage rates at all-time highs and payments doubled, divorce can be very stressful. But there's a glimmer of hope. Loan assumptions are becoming a common choice for couples looking to keep their better loan interest rates they have with their existing mortgage.

It's important to know your options if you want to assume the mortgage. You might consider a legal transfer assumption, a qualified assumption, or government-backed loans like FHA, VA, or USDA. Each option has its own rules and benefits.

The key is to start early, get professional help, and think about equity, taxes, and protecting your credit.

This journey is not just about numbers. It's about making sure you and your loved ones have a stable future. Let's get into the details and find the best solution for you and what was the marital home.

Key Takeaways

• Loan assumptions can be a viable option for divorcing couples with mortgages
• Government-backed mortgages (FHA, VA, USDA) are typically assumable
• The assumption process requires working with financial and legal experts
• Early planning and professional guidance can lead to better outcomes
• Consider tax implications and credit protection when making decisions
• Explore alternatives like refinancing or selling the house for cash if assumption isn't possible

Can a Spouse Assume a Mortgage in a Divorce?

Divorce can make owning a home tricky, but an assumable mortgage might help. This lets one spouse take over the loan with the same terms. FHA, VA, and USDA loans are usually assumable, unlike most conventional loans.

According to LendingTree, "Conventional loans aren’t usually assumable because the mortgage contract usually contains a due-on-sale clause, which allows the lender to demand the entire remaining loan amount once the property is sold."

The Garn-St Germain Act helps during divorce by stopping lenders from demanding full payment. However, lenders must agree to the assumption. They check if the new borrower can pay back the loan.

When you got the loan, you may have had two incomes that helped you qualify for the mortgage loan. It can be hard to qualify for the loan with just one income. It's not that it cannot be done, but the mortgage lender want to make sure you are capable of making the current mortgage payments.

Assuming a mortgage doesn't free the original borrower from debt. It's smart to ask the lender to release the other spouse from future payments. This protects both sides.

According to Apex Home Loans, "A Certified Divorce Lending Professional brings the financial knowledge and expertise of a solid understanding of the connection between Divorce and Family Law, IRS Tax Rules and mortgage financing strategies as they all relate to real estate and divorce."

The process of assuming a mortgage takes time and might cost money. You'll need to pay for legal papers, title insurance, and other things the lender wants. If you can't assume, refinancing or selling to a cash buyer are good options.

Unapproved Assumptions

Wikipedia states, "In order to assume an existing mortgage loan it is generally necessary to obtain consent from the lender prior to the assumption process. Transfer of property with an existing mortgage loan that is made without the lender's consent is sometimes referred to as a sale "subject to" the existing loan. In most cases, this type of transfer does not avoid the lender's right to call the loan due under the due-on-sale provision in the loan."

Be careful here. According to Lone Star Land Law, "Title companies are conservative institutions that avoid potential liability so most assumptions will need to be closed without title insurance in the office of an attorney familiar with creative transactions. If a buyer is curious about the status of title (and an investor-buyer should always be curious about the chain of title) then a title report should be obtained and examined before closing."

Just because the divorce decree says so, it doesn't change the mortgage note. Always tell your lender about any changes in ownership to avoid problems with your loan.

The Process of Mortgage Assumption After Divorce

Divorce changes many parts of life, including owning a home. Taking over a mortgage can be an option for some couples. Let's look at the types of assumable mortgages and the steps to take.

Types of Assumable Mortgages

There are two main types of assumptions: legal transfer and qualified. With a legal transfer, the new borrower doesn't need to qualify, but the original borrower is still responsible. In a qualified assumption, the new borrower must meet certain criteria, and the original borrower is no longer responsible.

Government-backed loans like FHA, VA, and USDA are often assumable. Some conventional loans backed by Fannie Mae and Freddie Mac may also be an option. But, most conventional loans need refinancing to change the borrower's name.

Legal Requirements for Mortgage Assumption

The legal steps for mortgage assumption include:

• Getting lender approval
• Providing a finalized divorce decree
• Passing credit checks

Lenders usually won't review an assumption application until the divorce settlement is finalized. This can take 3 to 6 months.

Qualifying for Mortgage Assumption

To qualify for a mortgage assumption, the assuming spouse must meet certain criteria. These include:

• A good credit score
• Stable employment history
• Sufficient income to cover mortgage payments
• Acceptable debt-to-income ratio

The assuming spouse may need to consider home equity buyout and support payment qualifications. It's wise to talk to professionals who know about loan assumptions in divorce. They can help you understand the marital settlement agreement and if mortgage assumption is right for you.

Your Options If Payments Cannot Be Made

Going through a divorce and dealing with mortgage payments can be tough. About half of all marriages end in divorce, causing financial stress. If you can't take on the mortgage, there are things you can do.

Refinance

Refinancing is a common choice after a divorce. You can use a cash-out refinance or a home equity line of credit (HELOC) to get funds. This way, you can buy out your ex-spouse's share of the home.

You'll need to qualify based on your income and credit score. This might mean less favorable terms. But, it could help you keep your home and avoid foreclosure.

Sell to a Cash House Buyer

If refinancing isn't an option, selling the house to a cash buyer during divorce is a quick fix. This lets you solve the joint mortgage problem and split the money. It's great when you face financial challenges after divorce, like lower income or more debt.

You could easily sell the house after divorce. This could help you out of the stressful situation and allow you to move on with your life.

Remember, divorce doesn't mean you're free from debt. Talk to a financial adviser or a Certified Divorce Lending Professional. They can guide you through the tough choices, helping you make smart decisions about your home and money.

Q: Can one spouse take over the loan after a divorce?

A: Yes, one spouse can assume the mortgage after a divorce, but it usually requires the lender's approval. This process is known as loan assumption.

This option could mean you need to give up other assets to make the split of equity during divorce more equal.

Q: What does it mean to assume the mortgage?

A: To assume the mortgage means that one spouse takes over the responsibility for the mortgage loan, including all payments, while the other spouse is released from the obligation.

Q: Are mortgages always assumable?

A: Not all mortgages are assumable. It depends on the terms of the mortgage loan. It's important to check with your lender to see if your current mortgage is assumable.

This was mentioned in detail above in this article.

Q: What is the assumption process like?

A: The assumption process typically involves submitting a request to your lender, who will evaluate the creditworthiness of the spouse looking to assume the loan. If approved, the lender will provide an assumption agreement.

Q: What happens to the original mortgage during the divorce?

A: During the divorce process, both spouses are typically still obligated on the current mortgage note unless one spouse assumes the loan or refinances it into a new mortgage.

Q: Can I refinance the mortgage to remove my former spouse?

A: Yes, refinancing the mortgage is a common way to remove your former spouse’s name and take sole responsibility for the mortgage payments. However, you’ll need to qualify for a new loan based on your financial situation.

Q: What if my spouse is awarded the marital home?

A: If your spouse is awarded the marital home, they may agree to take sole responsibility for the mortgage. This could involve assuming the loan or refinancing it into their name.

Q: How does the divorce lending association help in these situations?

A: The divorce lending association provides resources and guidance for individuals going through a divorce, helping them understand their options regarding mortgage loans and the assumption process.

Q: What protections do consumers have when it comes to mortgage lenders after divorce?

A: There are laws that protect consumers from mortgage lenders enforcing obligations that may no longer be applicable after a divorce, especially if the spouse has taken over the existing mortgage properly through an assumption agreement.

Q: Can a lender deny a mortgage assumption request?

A: Yes, a lender may deny a mortgage assumption request if the spouse looking to assume the loan does not meet their credit requirements or if the mortgage terms do not allow for assumption.