Navigating VA Loans During Divorce: A Helpful Guide

Going through a divorce is difficult enough without having to worry about what will happen to your VA home loan. With so many emotions and logistics to deal with, the last thing you want is uncertainty around your living situation and finances.

That’s why I put together this comprehensive guide on VA loans and divorce. My goal is to walk you through all the key things to know if you find yourself needing to make decisions about a VA mortgage during a separation or divorce.

Overview of Options for VA Loans in Divorce

If you and your spouse purchased your home using a VA loan you have several options when it comes to handling the VA mortgage

• Sell the home and split proceeds
• Refinance in one spouse’s name
• Transfer loan to spouse (assumption of loan)
• Seek release of liability

Let’s explore each of these in more detail.

Selling the Home

One clean and simple option is to sell the home and split the profits. This severs the financial tie between you and your ex-spouse.

The home sale proceeds first go toward paying off the VA mortgage. Any additional equity left over can be divided as you and your spouse agree during the divorce proceedings.

Selling the house provides a fresh start for both parties, allowing you to move on without attachment to the property or financial obligations to each other. Just be aware this option also comes with costs like realtor fees, closing costs, and taxes.

Refinancing the Mortgage

If one spouse wants to keep the home, refinancing the mortgage into a single person’s name is a possibility.

For the spouse keeping the home, they would need to qualify for a new loan on their own based on income, credit score, and other factors.

• If the spouse keeping the home is a veteran, they may qualify for a VA streamline refinance. This is often the simplest option since it minimizes paperwork and uses the home’s existing VA eligibility.

• If the civilian spouse retains the home, they would need to qualify for a conventional mortgage.

Either way, the spouse not keeping the home gets removed from the loan and title. They are no longer responsible for payments or entitled to the home.

Transferring the Loan (Assumption)

In some cases, the VA mortgage can be transferred to or assumed by the spouse keeping the home.

To assume the loan, the recipient spouse must be able to meet the income and credit qualifications on their own. They may also need to pay the VA funding fee, which is 0.5% of the remaining principal balance.

The original veteran spouse gets released from the loan obligation. However, their VA entitlement gets tied up until the full loan amount is repaid. This limits their ability to reuse VA home loan benefits until then.

Seeking Release of Liability

Veterans can proactively remove themselves from a VA mortgage obligation through a release of liability. This restores the veteran’s entitlement to reuse VA home loans in the future.

To get a release of liability, the veteran contacts the mortgage servicer and applies for the release. It must be approved by the VA. This option works well if the civilian spouse assumes the loan.

Key Factors to Understand

Beyond the core options above, there are some nuances around VA loans and divorce you need to consider:

• Occupancy rules: The VA has occupancy requirements on loans they back. If you have a VA mortgage, the home must be your primary residence. Renting out the home is not allowed.

• Entitlements: Your VA entitlement gives you access to VA loans. With divorce, you can restore entitlement through release of liability, loan assumption, etc. Manage this carefully.

• Qualifications: The spouse keeping the home must qualify for a loan independently. Their income, debts, and credit history matter.

• Fees: Costs may include the VA funding fee, closing costs, taxes, etc. Factor these into your decision.

• Timing: It takes time to sell a home or finalize a refinance. Make sure timelines work with your divorce plans.

Step-by-Step Process

If you need to make decisions about a VA home loan through divorce, follow this process:

1. Consult your divorce attorney – Review options and laws regarding property division.

2. Check VA loan documents – Understand original loan terms, occupancy rules, entitlements, etc.

3. Discuss intentions with ex-spouse – Do you both want the home? Can one qualify to keep it?

4. Explore options with a lender – Get details on qualifying, costs, timelines for each option.

5. Make a joint decision – Weigh the pros and cons of selling, refinancing, assumption, etc.

6. Follow through on chosen option – List the home, finalize refinancing, pursue release of liability, etc.

7. Finalize divorce agreement – Formalize the property and debt division in your divorce decree.

Frequently Asked Questions

Here are answers to some common questions about VA loans when divorcing:

Can a civilian keep the home with a VA loan?

Yes, through assuming the loan or refinancing into their name only.

What happens to a VA loan after divorce?

It can be refinanced, assumed, or paid off through sale. Release of liability also removes obligation.

Can an ex-spouse qualify for a VA loan?

No. Only current spouses or surviving spouses can use VA home loans.

Can a veteran remove their spouse with a refinance?

Yes. The veteran can refinance into only their name through a VA streamline if eligible.

What if the civilian can’t qualify to keep the home?

Then you’ll need to sell the home or the veteran would have to refinance it into their name.

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