Thinking about refinancing the marital home because of a divorce situation?
Question: Refinancing the marital home in a divorce situation is typically required in order to remove one spouse from the mortgage and to pay the other spouse their share of equity in the property. The number one mortgage lender error when working with divorcing clients is to assume the new mortgage is a “cash out” mortgage which carries higher interest rates and limits access to the property equity. In order for the borrowing spouse to qualify for a standard non-cash out refinance, how many months does the borrowing spouse need to be on title to the subject property?
Answer: The borrowing spouse must currently be on title to the marital property for at least twelve (12) months prior to the mortgage loan application in order for the new mortgage to be considered a non-cash out mortgage. If the borrowing spouse has been on title for less than the required time, the new mortgage must be considered as a cash out refinance and will limit the new loan to value of the home at 80%. If the current mortgage on the property is 75% of the value, the borrowing spouse may only take an additional 5% equity out of the property in a cash out scenario. If the vacating spouse was to receive 15% of the remaining equity in the property, the borrowing spouse would be short on the equity buyout by 10%.
Key Tip: Every mortgage application for a divorcing client has many turns and unique situations. Working with a Certified Divorce Lending Professional (CDLP) during the settlement process can help your divorcing clients avoid many pitfalls and mistakes commonly made in the mortgage process. A CDLP can help you set your divorcing clients up for success and make obtaining the new mortgage easier and avoid many commonly made mistakes.
It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP) can help answer questions and provide excellent advice. To find a CDLP in your area, please click here.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.