In many divorce situations, one of the most important and emotional decisions is agreeing on what will happen to the marital home. In some cases, the parties agree to sell the home and divide the equity. In other cases, one spouse decides to keep the home and then needs to buy out the other spouse’s equity. In order to do this, the spouse keeping the home will need to refinance.
I have asked hundreds of loan officers, “When do you start a refinance for a divorcing couple?” Fully 99 out of 100 get it wrong. They say, “Only after the divorce is final.” I have heard them say to clients, “Bring me the final decree signed by the judge and I will see what we can do.” That is exactly the wrong approach … and the consequences of waiting that long can be disastrous.
The best approach is to seek out a Divorce Lending Specialist who really understands both the law and principles of loan underwriting – and do it early in the process!
I have seen many, many splitting couples so frustrated and ready for the divorce to be over they just say, “Whatever” … but later find themselves unable to carry out the orders of the decree by refinancing. Attorneys have enough financial information to divide an estate equally – but often they are not familiar with how a lender defines “income” or whether a client has credit scores high enough to qualify for a loan.
Best outcomes are achieved when a divorce refinance starts before mediation or negotiation with the soon-to-be ex-spouse. This gives the attorney and the divorcing person knowledge and leverage to conduct negotiations.
A skilled Divorce Lending Specialist will “pre underwrite” the debts expected to be assigned to each party and structure the Owelty correctly. That Specialist will also help ensure the divorce decree clearly outlines the division of equity, as well as which spouse will be awarded the home and the responsibility of the mortgage. The person who retains the home will be in position to refinance the week the divorce decree is signed by the judge.
The refinance will not only allow the equity buyout, but it will also remove the exiting spouse’s name from the note and title to the home.