The house is usually the biggest asset of a married couple. But when the union is marred by a divorce, the house and its mortgage becomes an enormous liability. There are ways of handling house repayments after a divorce and each one will depend on the circumstances each spouse is in. Whatever option you choose, be sure to get into the details to avoid being deceived and to protect yourself from future financial disaster. It’s always best to consult a lawyer on how to proceed with housing mortgage repayments during a divorce. Here are advice from experts.
On the surface, this is the easiest solution. Sell the house and pay the balance of the mortgage. Then divide the remaining amount equally between the two of you and go your separate ways. But if the value of the house is less than when it was bought (as a result of the 2007 recession,) the sale may not be enough to pay off the housing loan and both of you will still have to pay the remaining balance.
Another alternative is a short sale. A short sale is possible if the lender and the homeowner agree to sell the house at a value less than the borrowed amount. In most cases, the lender will consider the loan amount as paid in full. Some cunning lenders will still go after you for the unpaid amount after the short sale by asking you to sign a promissory note. Be wary of signing such papers even before the lending institution agrees to a short sale. A short sale will have a negative effect on your credit score but it will not be as bad as a foreclosure.
The emotional devastation that selling the marital house brings to the family cannot be avoided. This is, after all, a place of once happy memories especially for the children. But logic and levelheadedness must prevail. A child visitation lawyer advises couples to talk to their children and explain the circumstances in a matter-of-fact way to minimize the trauma.
If you want to keep the house after the divorce and your spouse agrees, you can refinance your home by taking out a new loan and using it to pay off the balance in the current loan. This new loan will be in your name only and you will have to buy out your spouse by giving him his share of the house’s value, or equity (most divorces split the assets 50-50.) The house ownership must also be transferred in your name alone, without your ex-spouse.
By refinancing, only you will pay the monthly installments on the loan and you get to own the house entirely after paying off the loan. But you have to qualify for it and show proof of financial ability to pay, among other criteria. When you refinance a house mortgage, it will entail a lot of cost. There will be fees, paying points and closing costs. You might also have to pay penalties for closing the original mortgage early. On the other hand, the interest rate of your new loan may be lower than what it was in your original loan.
Keep in mind that you will be paying for many years to come. Ask yourself if you can afford it. Imagine yourself single; would you buy this house? A decision to refinance should not be an emotional one but should be based on practical considerations.
You and your spouse can agree to rent the house and use the rental towards payment of the mortgage. If it cannot cover the full monthly dues, both of you will have to pay for the lack in equal shares. The downside to renting are:
- You should choose a responsible party who will pay regularly. If he defaults, the lender will go after you because the mortgage is still in both your names.
- If your ex-spouse defaults on payment, you are responsible for the mortgage.
- Both of you cannot get another mortgage until the current loan is paid or you sell the house to pay off the loan.
If a buyer comes along with a fair market price, sell the house to pay off the loan.