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A model of a home by the scales of justice

What happens to your mortgage in a divorce?

Couples going through a breakup face many difficult decisions including what to do with their mortgage. In 2020, the average mortgage debt in the U.S. was $208,185 with a payment of just over $1,500 per month. When your relationship changes, what do you do with your mortgage bill?

If the mortgage is in both your names, you’re both responsibilities for the monthly payments regardless of who is living in the house. Missed payments will negatively impact both your credit scores. So the first thing you’ll need to decide is how to continue to make payments during your separation. Then decide what you’ll do with your mortgage.

There are normally two ways separating couples handle their mortgage. Couples either sell their home or refinance to remove one person from the mortgage.

Sell your home and pay off your mortgage
Find a local real estate agent, agree on the asking price, and place your home on the market. When you accept an offer for the house, use the funds to pay off your mortgage. If you’re lucky enough to get any additional proceeds from the sale, those funds can be split between you and used towards financing your new homes. It’s a good way to make a clean split and each have a little extra money to go towards your new life.

Refinance your house in one person’s name
If one of you would like to stay in the house, you can work with your home lender to refinance in just one person’s name. To do this, the spouse remaining in the home will have to apply for the new loan, your home lender will verify they are able to make payments on their own, then the refinance will close. Refinancing typically takes 30 – 60 days and the spouse who stays in the home will have to pay closing costs.

A less common option is for you to continue to co-own the home together. You will both continue to have the mortgage listed as a debt on your credit report and you’ll both be negatively impacted by any missed payments. But it may be a good option if a custodial parent can’t afford the house on their own. By co-owning it together, your kids are able to stay in their house and have a sense of continuity.

A note about community property
Some states observe community property laws meaning both you and your spouse make equal ownership claims to assets, like houses, acquired during your marriage. In these states, you’re both responsible for the mortgage debt whether your name is on the loan or not. And you’re both going to split the home sale proceeds wither you’re on the mortgage or not. The law is more detailed than that, so be sure to contact your attorney if you have any questions.

As of 2021, there are nine states where community property laws are in place for married couples:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

The law is also observed in the U.S. Territories of Guam and Puerto Rico.

If you have any questions about your mortgage or how you can refinance to remove someone from it, be sure to contact your loan officer. Mann Mortgage loan officers are here to work through any changes you need to make to your mortgage due to life changes.

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