Guest Post by Nicole Williams, Mortgage Planner with the Hanson Planning Group, a Branch of Megastar Financial
Understanding mortgage responsibility during a divorce is crucial. When one spouse wants to retain the martial home there are 3 options for handling the existing loan.
Legal Assumption – Assuming legal responsibility allows the spouse retaining the home to take on legal responsibility for the loan regardless of whether they are obligated on loan. When the “out-spouse” qualifies for a new mortgage loan, the existing mortgage may be excluded from that spouse’s debts. In mortgage terms, this falls under “court ordered assignment of debt.” However, any spouse obligated on the current loan is still responsible for the payment in the eyes of the creditor, so any delinquent payments or defaults will be reported to the credit bureaus.
Qualified Assumption – A qualified loan assumption allows one spouse to take over the mortgage, and it involves official paperwork with a thorough financial check and approval from the lender. This is different than a refinance as it may keep the existing loan terms intact. A loan assumption ensures one party becomes the sole responsible borrower and releases the other borrower from liability. It’s important to note that not all loans are assumable or assumable at the existing terms, and no cash out may be taken from the home when completing a loan assumption.
Refinance – If the current loan is not assumable or cash out is needed from the equity, then a refinance of the existing mortgage is required. As with a qualified assumption, a refinance includes a thorough financial check and approval from a lender.
It’s important to work with a certified divorce lending professional during the divorce settlement process to ensure one or both spouses will be able to obtain mortgage financing post decree. Keep in mind that what may be available as a legal option is not always available as a mortgage option. Always consult professional legal and mortgage advice.
Nicole “Kiki” Williams, CDLP®
Mortgage Planner | NMLS 256034
Certified Divorce Lending Professional
CO LMB 100024795
O – (303) 300-8603
M – (720) 339-0810
E – [email protected]
W – www.megastarfinancial.com
Hanson Planning Group – A Branch of MegaStar Financial®
1080 Cherokee St, Denver CO 80204