Mortgage Refinance and Divorce Explained

Getting a mortgage refinance in divorce proceedings is very common. Here are the basics of getting a mortgage refinance when a divorce is involved.

Why a Refinance Is Necessary

Many times when a couple is going through divorce, they will need to refinance the mortgage on their home. In some cases, the judge in a bankruptcy case will order that the property is sold and the profits from the sale are divided equally between the two spouses. However, in many cases, one of the spouses is going to want to stay in the property after the divorce. If the property is awarded to one of the spouses, the portion of equity that belongs to the other spouse must be purchased. The spouse that is going to remain in the home is going to have to come up with the cash that is necessary to buy out the other spouse's equity. In the majority of cases, a refinance will be necessary in order to come up with this amount of cash.

In addition to paying off one of the spouses, this process will be necessary in order to remove one of the names from the existing mortgage and the deed. If you simply pay off the other spouse without refinancing, his or her name is still going to be on the mortgage and the deed to the property. The only way that you can remove one of the names from the mortgage is to refinance it and get a completely new mortgage. If you are the spouse that is moving out of the house, you want to make sure that your name is not going to be associated with the house any longer. Otherwise, if the spouse that is currently living in the home does not make the mortgage payment, it will come back to negatively affect your credit.

How the Process Works

To complete this process, the individual that plans on staying in the home needs to seek out a new mortgage loan. In some cases, this can be difficult because he or she will have to be able to qualify for the loan alone. In many cases, married couples can afford to purchase a house only because they have two incomes. When you are trying to refinance your existing mortgage, you will not have this luxury, so you may have to shop around a bit.

Once you find a lender that you want to work with, you will need to fill out a mortgage application. The lender is going to evaluate the application and check your credit. Once you are approved for the loan, they will provide you with the money that you need to pay off your existing mortgage. You will pay off your mortgage and then use a portion of the funds that are left over to pay off your spouse. You are free to keep the rest of the funds if there are any left over.