Navigating Homeownership and Mortgages During Divorce

Divorce isn’t typically a decision anyone takes lightly, and is more often the culmination of a lot of stress, some struggle, and plenty of emotions (hopefully ending with a sense of relief). During the process, you might feel like the mere thought of purchasing another home outside of your previous marriage is overwhelming and daunting, but with the right knowledge at your disposal, buying a home during a divorce is more like a light at the end of the tunnel — a promise for a fresh future.

 

Challenges of Home Buying During Divorce

Buying a home during a divorce comes with its fair share of hurdles, as legal and financial details can quickly complicate the process. Marital assets — like shared savings or an existing home — might still be tied up in negotiations, making it tricky to set aside money for a down payment. Separation agreements can also play a big role, especially if they outline financial responsibilities like spousal support or debt obligations that affect your borrowing power. On top of that, lenders will want a clear picture of your finances before approving a loan. It’s a lot to juggle but working with the right legal and mortgage experts can help you navigate these challenges and find a path to homeownership that feels right for your fresh start.

 

Can You Buy a Home While Separated?

Buying a home while separated isn’t always straightforward, thanks to the legal and financial strings still tying you and your spouse together. In many cases, anything you purchase during this time could still be considered marital property, which might mean your spouse has a claim to it. That’s why some people find it easier to hold off until the divorce is finalized — less hassle, fewer loose ends. But if waiting isn’t an option, having a solid separation agreement and getting guidance from legal and mortgage experts can help you make the process smoother and keep things as stress-free as possible.

 

Joint Mortgages & Divorce

Dividing a joint mortgage during a divorce can feel complicated, especially since the loan won’t automatically adjust to your new circumstances (wouldn’t that be nice?). If one spouse plans to keep the marital home after the divorce is finalized, you’ll need to address whose name is on the current mortgage and how much equity needs to be paid out as part of the settlement. For joint mortgages, there are two common options to release one party from liability: refinancing or assuming the loan.

Refinancing
Refinancing pays off the current loan and replaces it with a new one in the name of the spouse keeping the home. To qualify, the borrower would need to meet the lender’s income and credit requirements. Refinancing also allows the person staying in the home to access equity to pay the other spouse their agreed-upon share.

Mortgage Assumption/Release of Liability
Another option is assuming the existing mortgage, which lets one spouse take over the loan while keeping its original terms, including the interest rate. This process requires approval from the mortgage servicer and confirmation that the remaining borrower can handle the payments on their own. It’s worth noting that servicers often suggest refinancing instead, so using terms like “release of liability” when speaking to them may improve your chances of success. While an assumption avoids refinancing costs, it usually involves a fee and takes 60+ days to complete. However, you won’t be able to access equity through an assumption, meaning you’ll need another way to pay the departing spouse their share.

Until the joint mortgage is resolved, both spouses remain financially responsible — even if only one is living in the home. Handling this early in the divorce process can help prevent lingering financial ties and pave the way for a smoother transition.

A Tip From the Pros
It has been our experience that when clients ask their mortgage servicer to remove a spouse they get told that they need to refinance, but if they request a “release of liability” for themselves or a spouse it often happens. Remember that mortgage servicers make money when a refinance takes place, but do not when a mortgage assumption or “release of liability” happens.

 

Buying a Home After Divorce

Buying a home after a divorce is a big step, but with the right preparation, it’s entirely feasible. Start by focusing on rebuilding your financial stability — creating a budget, saving for a down payment, and cutting down on debt. It’s also crucial to check your credit score and take steps to improve it if needed, like paying off outstanding balances and making timely payments on existing accounts. Once your finances are in a strong place, start shopping around for mortgage options that fit your new situation. Working with a mortgage professional can help you understand what’s realistic and how to position yourself for the best loan terms. It may take time, but with patience and planning, homeownership after divorce can be a fresh and exciting new chapter.

Work With a Mortgage Company That’s On Your Side
When navigating the complexities of home buying during a divorce, it’s important to work with a mortgage company that truly understands your unique situation. At Treadstone, our team of compassionate and knowledgeable agents is here to guide you every step of the way. Our experts take the time to listen, answer your questions, and ensure you’re set up for success in your next chapter of homeownership. Reach out to Treadstone today, and let us help make your transition as smooth as possible.

 

FAQs

Does alimony count as income for a mortgage?
Yes, alimony can count as income for a mortgage, but it depends on the lender’s requirements. Generally, lenders will consider alimony as income if it’s consistent and likely to continue for a certain period, typically at least three years. Be prepared to provide documentation, such as a court order or agreement, to verify the payments.

Can you get a loan while going through a divorce?
You can get a loan while going through a divorce, but it can be more challenging. Lenders will look closely at your financial stability, including your income, credit score, and whether your divorce agreement affects your ability to repay the loan.

What mortgage options are there during a divorce?
When it comes to handling an existing mortgage during a divorce, you’ve got two main options: refinancing or assuming the mortgage. With a mortgage assumption, one person takes over the existing loan and keeps its original terms, which can be great if the interest rate is low and the mortgage servicer gives the green light. Refinancing, on the other hand, means replacing the old mortgage with a brand-new one under just one name. This option offers a clean financial break but might come with higher interest rates or extra costs. Both choices have pros and cons, so it’s important to think about what works best for your budget and long-term goals and talk to your lender to learn more about your options.

Is it better to buy a house before or after divorce?
It’s usually better to wait until after a divorce is finalized before buying a house. Purchasing a home during the divorce process can complicate things, as both parties may still have financial ties. Waiting allows for a clearer financial picture and can help avoid potential legal issues or added stress.

Can I be a first-time homebuyer again after divorce?
Yes, you can be a first-time home buyer again after a divorce. The definition of a “first-time home buyer” typically refers to someone who hasn’t owned a home in the last three years, so if your previous home was sold or transferred during the divorce, you may qualify.

Buying a home during a divorce can be a promise for a fresh future