Breaking Up? Here’s What You Need to Know About Your Mortgage

Divorce is never easy, and when real estate is involved, things can get even more complicated. One of the biggest questions that comes up is: Can you assume your current mortgage instead of refinancing?

The answer depends on the type of loan you have. FHA loans are assumable, while conventional loans are not. This can have a major impact on your financial future—especially if you’re trying to keep your low interest rate or avoid a costly refinance.

Let’s break it down so you can make the right mortgage decision if your relationship status changes.

FHA Loans Are Assumable—A Key Advantage

If you have an FHA loan, you’re in luck—these loans are assumable, which means that if one spouse wants to stay in the home after a divorce, they can take over the loan without having to refinance.

Why does this matter? Interest rates.

Say you locked in a rock-bottom rate of 2.5% during COVID. If you refinance today, you could be looking at rates in the 6-7% range. That means higher monthly payments and thousands more in interest over time.

With an FHA loan assumption, the spouse who keeps the home gets to keep the existing interest rate—a massive financial advantage.

However, there’s a catch:

• If your ex wants cash as part of the divorce settlement, an assumption won’t work.
• Assumptions do not allow cash out, meaning you can’t pull equity from the home to pay off a spouse.

So while an FHA assumption is great for keeping the mortgage in place, it won’t help if you need to buy out your ex’s share of the home.

Conventional Loans Are NOT Assumable—Refinancing Is Required

If you have a conventional loan, assumption is off the table. The only way to remove a spouse from the mortgage is to refinance the loan into the name of the person keeping the house.

But here’s the good news:

If your divorce settlement requires you to pay your ex, a cash-out refinance isn’t always required.

Instead, if the refinance is done specifically to satisfy a divorce decree, it can be treated as a rate and term refinance—not a cash-out refinance. That means you can refinance up to 95% loan-to-value (LTV) and still pull money out to pay off your ex-spouse.

Here’s why this matters:

• Better rates – A rate-and-term refinance offers lower rates than a cash-out refinance.
• Higher loan-to-value (LTV) options – You can refinance up to 95% LTV, whereas a traditional cash-out refinance might cap at 80% LTV.

If you’re in this situation, working with an experienced lender is key to making sure your refinance is structured properly.

What If You’re Still on a Mortgage With an Ex?

Divorces don’t always result in a clean financial break. Sometimes, an ex-spouse remains on the mortgage and continues making payments.

If this happens, it can affect your ability to buy another home—unless you can prove that your ex is making the payments on their own.

To exclude that mortgage from your debt-to-income ratio, you need 12 months of bank statements showing that your ex is making the payments directly to the lender.

If you’re not on that bank account and not making the payments yourself, you may still qualify for another mortgage—even with that old loan on your credit report.

Final Thoughts: Choosing the Right Loan for Your Situation

If you’re in a committed relationship but aren’t sure about long-term stability, an FHA loan might be the smarter choice. Its assumption feature could save you thousands if things don’t work out.

On the other hand, if you already have a conventional loan, refinancing is your only option if you need to remove a spouse or pull equity to pay them off.

Either way, understanding your options now can save you from financial headaches later.

If you’re going through a divorce and need expert guidance on the best mortgage solution, let’s talk. With the right strategy, you can protect your finances, keep your home, and move forward with confidence.

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