Learn the two mistakes you want to avoid if you are worried about what happens to the house in a divorce.

One of the biggest decisions divorcing homeowners face is what to do with the marital home and knowing what happens to the house in a divorce can be a major issue. Trying to agree on how to handle the mortgage and the home can be a challenge without proper direction from a CDLP (Certified Divorce Lending Professional). Fortunately today we are hearing from Renee Guidaboni Coleman, one of our Divorce Squad Experts and a CDLP. Renee is sharing the two mistakes she sees made most often and what and how to avoid them for a better outcome. Let’s learn what Renee has to share today…

Your options for how to handle your mortgage and division of the value of the home available depend on several factors, such as how the property was financed and how ownership is currently held. Additional factors to take into consideration include the disposition of property, the amount of equity available in the property, and the income sources available for the borrowing spouse.

There are many common mistakes made during divorce when working with a mortgage professional who does not fully understand the implications of divorce and the opportunities to help the divorcing homeowners with their mortgage financing.

Mistake #1: “If the couple has equity in the home, the spouse keeping the house should apply for a cash-out refinance to pay the departing spouse their share of the equity. It may mean doing a cash-out refi first to get part of the money to the exiting spouse, then following that up with a home equity loan to get the remaining money due to the exiting spouse”.

NOOOO!!! Mortgage underwriting guidelines allow for a MUCH better solution!

When a CDLP works with the divorce team and the divorcing couple, specific verbiage can be used in the divorce settlement agreement which will classify the refi as an Equity Buy-Out Rate & Term refi. NOT a cash- out refi. The benefit is access to more equity in the home which usually is capped at 80% Loan-to-value with a cash-out refi. Better financing terms are typically available in this situation as well…..that typically means a better interest rate!

Mistake #2: “Leaving the vacating spouse’s name on the existing mortgage will affect the ability of the departing spouse to qualify for future mortgage financing because the existing mortgage payment will be included in the spouse’s debt-to-income ratio if they remain on the current mortgage.”

No!

When the divorce settlement agreement assigns the responsibility of paying an existing debt, the debt is classified as a court-ordered assignment of debt. For mortgage financing requirements, this may allow for the debt to be omitted from the borrower’s debt-to-income ratio, helping them to qualify for a new mortgage in their name only while remaining on the existing mortgage to the marital home.

Before making any decisions regarding the marital home and mortgage financing opportunities, I recommend you reach out to me with your questions.

Working with a CDLP will make a huge difference in the outcome of your divorce as it pertains to the marital home. And if you are or are working with a Divorce attorney or mediator, or a CDFA (Cert. Divorce Financial Advisor), make sure you include a CDLP on your team!

Thank you, Renee! It is clear that addressing what happens to the house in a divorce in a way that is financially sound can make this often sticking point go MUCH smoother!