What Happens If I Can’t Refinance After Divorce?

Getting a divorce can have many consequences on your life, including having to refinance your mortgage. If you and your soon-to-be-ex-spouse share a mortgage on a home, refinancing can make it easier to separate your real estate assets. If you cannot refinance, however, you may have other options.

Buy Your Ex Off the Mortgage

The most common problem people encounter when trying to refinance a home after a divorce is being approved for a new loan. You may not qualify without your ex-spouse’s income, for example, or debts accrued during your marriage may have hurt your credit score. 

Whatever the reason, if you cannot refinance your home after a divorce, you may wish to consider a home buyout instead. With this arrangement, you pay your ex-spouse the amount of equity he or she has in the home or real estate to become the sole owner. Learn more with our family attorney in Orange County today.

First, get the house appraised to find out how much it is worth. Subtract the amount that is still owed on the mortgage. Divide that by two to determine how much each of you has in equity. Add your ex-spouse’s equity and the amount left on the mortgage together to get the buyout amount. If you cannot afford it outright, you may be able to negotiate with your spouse to exchange assets for it.

Sign a Release of Liability 

Another option could be a release of liability. This is a formal process that releases your spouse from his or her mortgage responsibility, placing 100 percent of the responsibility for all future mortgage payments on you. 

Contact your bank to inform them of the divorce and discuss your desire to release your spouse from the mortgage. Your mortgage lender will need proof of your ability to repay the full mortgage before releasing your spouse from liability.

Sell the Home

If your original plans for the home are not possible, it may be time to sell the house. Selling the house can give you a clean split from your ex-spouse and a fresh start. You and your ex will split the earnings equally under California law. You can then use your portion to rent an apartment or purchase a new home.

Ask for More Time

You do not necessarily need to rush into a decision on what to do with a shared home or property after a divorce. You can participate in a settlement agreement with your spouse that gives you more time to improve your credit score, earn more income, and take other steps to qualify for a refinancing loan or a release of liability document. 

If the current housing market does not benefit you or your spouse, waiting may be an appealing option for both of you. In the meantime, you can continue to live in the house and make shared payments on the mortgage.

Discuss Your Options With a Divorce Attorney

You are not out of options if you cannot refinance your mortgage after a divorce. The right choice for you and your ex-spouse will depend on your goals, wishes and circumstances. Discuss your specific case in detail with a knowledgeable divorce attorney in Orange County for personalized legal advice. Boyd Law offers free case consultations.