Refinancing Your Home Loan After Divorce: A Complete Guide

Going through a divorce can be an emotionally and financially difficult time. If you jointly own a home with your former spouse, deciding what to do with the mortgage can add extra stress. Refinancing the loan is often a smart option to consider.

In this comprehensive guide, we’ll explain everything you need to know about refinancing your home loan after a divorce.

Why Refinance After Divorce?

Here are the top reasons to refinance your mortgage if you’re divorced or getting divorced:

Remove Your Spouse From the Loan

If the mortgage is in both of your names, you’re both still responsible for repaying the debt even after the divorce Refinancing and taking out a new loan in only one spouse’s name removes the other spouse’s financial liability. This can be important if your ex-spouse wants to buy another home

Improve Your Credit

If your ex stops making payments on a mortgage you co-signed it damages your credit too. Refinancing to take your name off the loan protects your credit from missed or late payments.

Access Home Equity

Refinancing lets you tap equity through a cash-out refinance or HELOC. You can use the funds to buy out your ex’s share of the home per your divorce agreement

Change Loan Terms

You may want to refinance to get a lower interest rate, shorter repayment term, or different loan type than your current mortgage.

How Refinancing Works After Divorce

The process is similar to a regular refinance. The main difference is the spouse keeping the home must qualify for the new loan alone.

Here are the basic steps:

• Submit financial documents and undergo a credit check
• Start the loan application online
• Get the home appraised to verify its value
• Close on the refinance loan

If you’ll receive alimony or child support, provide documentation since this income helps you qualify.

Refinancing Timeline After Divorce

You can refinance anytime after your divorce, whether it’s finalized or still in progress. Some benefits of refinancing early:

• Lock in lower interest rates
• Remove your spouse promptly from the loan

However, waiting until after your divorce settlement can help both spouses understand the financial impacts. There’s no set deadline for when you must refinance.

What if You Can’t Refinance?

If you or your ex don’t qualify for a refinance alone, you have alternatives:

• Ask your lender for a “release of liability” removing your ex from the mortgage
• Sell the home and split proceeds
• Keep the mortgage in both names temporarily

Tips for Refinancing After Divorce

Follow these tips to make your post-divorce refinance go smoothly:

• Shop around for the best rates and loan terms from multiple lenders. Online lenders like Rocket Mortgage often offer fast, easy applications.

• Get advice from your divorce attorney on the wisest options for your situation.

• Run the numbers to see if refinancing makes sense based on closing costs, interest savings, and your timeline for staying in the home.

• Improve your credit score before applying by paying down debts and disputing errors on your credit reports. A higher score can help you qualify and get better loan terms.

• Document all sources of income you can use to qualify, including alimony, child support, and your own salary.

• Consider a cosigner if your individual income and credit profile aren’t strong enough. This adds another person equally responsible for the mortgage.

• Compare title versus the mortgage. Your divorce decree affects who owns the home, not who owes the debt. Refinancing changes the mortgage only.

Alternatives to Refinancing After Divorce

If refinancing won’t work for you, look into these alternate solutions:

Selling the Home

Selling the house and splitting proceeds from the sale is often the simplest route. However, it means both spouses must relocate.

Mortgage Assumption

In some cases, your lender may allow your ex to assume sole responsibility for repaying the mortgage. But they’ll still need to demonstrate financial qualifications.

Quitclaim Deed

Your ex can sign a quitclaim deed transferring their ownership interest in the property to you. But you’ll still likely need to refinance to remove them from the mortgage.

Temporary Shared Mortgage

You can leave the mortgage unchanged in both names temporarily if needed. But this retains joint liability for payments.

The Bottom Line

Refinancing your home loan after divorce lets you and your former spouse move forward independently. With some wise preparation, you can make the process smooth and financially advantageous. Don’t hesitate to seek legal and financial guidance to consider all your real estate options after divorce.