Stuck paying for a house that’s no longer yours? Buying your spouse out of a property can be dicey especially, if both parties are not in agreement with one another on the debt and equity objectives. Following are ways, to separate and pay off an ex-spouse when getting a mortgage.
Divorced Or Separated?
If you and your ex are still legally married, but are not officially separated or officially divorced this can pose problems related to the scope of the desired split when separating property and liens (loans).
If buying a home…
The ex-spouse because you are not legally separated or divorced, would have to sign a quit claim deed releasing their interest in the property you are buying since you are still technically still conjoined to that person. The key is that the spouse must consent to releasing their interest in the transaction.
If trying to buy a home, are divorced and still tied to another property…
Let’s say you’re trying to purchase a home, you are legally divorced and the previous property has been awarded to your ex-spouse in the divorce decree, however for whatever reason your ex-spouse is not able to qualify for a new mortgage to refinance you off.
Happens all the time….
Your credit report shows a mortgage that your name is tied to on a property you know longer own nor have responsibility for. In the eyes of the mortgage lender, because the liability (loan) is tied to the property and has not been paid off with your name associated with it, the liability is still considered to be joint. This it must be accounted for in your debt ratios when the lender goes to qualify you for a new loan.
Your credit score and subsequent credit history is directly affected by your ex-spouse’s sole ability to make timely mortgage payments on the joint credit account. The only way to separate them from you beyond the divorce decree, is for the other party to sell the house or refinance the mortgage taking your name off the loan, thus omitting the liability from your debt to income ratio on your new purchase.
If refinancing to buy out the ex-spouse…
The scenario is both you and your spouse on a home together. Without the divorce degree and without a separation agreement, both parties collectively agree that one spouse will stay in the property and will buy out the other vacating the property.
Consider the the following scenario:
Bought a house several years ago for $400,000
The spouse leaving the property originally contributed $50,000 towards the down payment.
This person want their $50,000 contribution reimbursed.
You refinance cashing out $50,000 taking a new loan with a market interest rate and term to buy-out the other party.
Assuming a divorce decree or legal separation agreement has not yet been established, the lender would require no additional further documentation assuming both spouses currently reside at the property and are in agreement. Providing such documentation to the lender would certainly explain any questioning or clarifying that may arise in the loan process as well.
*If you are presently separated, in most loan scenarios, the lender will take in consideration any joint debt as the marital union is still in effect, this could spell trouble for qualifying purposes.
*If you are in the process of a divorce, it is ideal to complete any mortgage related activity after the divorce has been finalized.
*If the divorce is in the future, possibly completing the mortgage transaction/buyout before the divorce has taken place could be ideal as the transaction could be wrapped up sooner for both amicable parties.
Gift Monies are also permitted
Let’s say, your cash out refinancing your house to pay off your spouse who’ll be leaving the property. They put in $100,000 to purchase the property originally. House is not worth what you originally paid for the property and as such, the cash out refinance will only net them back 60% on the dollar.
The additional 40% can come in the form of gift funds. Gift funds can help solve the problem by providing additional capital to complete the transaction, completing the paying off objective. Lenders like to see gift monies coming from either immediate family or blood relative in most instances.
What Lenders Look For If Divorce Is In Your History
- Whose property is whose on the itemization of all real estate owned
- A copy of your previous divorce decree no matter how old it is including all pages all schedules and the marital settlement agreement rider
Consumers trying to qualify for a mortgage while tied to another property, would be best served having an open-ended communicative relationship with their ex, as the ex, can often times hold the cards in successfully completing a smooth mortgage transaction.
Need to buy out an ex? Start your refinance or purchase rate quote online with us. There is no SSI needed and its, free.