Explaining Mortgage Refinance During Divorce

Mortgage refinance divorce is a common occurrence today. You need to have a clear understanding of mortgage refinance and divorce, especially how they are interrelated, so that the refinance process is smoothly completed in case of a divorce with your spouse.

When is Refinancing Needed?

If the common house both spouses lived in is sold off by a qualified judge during divorce, the profits are supposed to be divided between both. However, the complication arises when either of the two wants to continue staying in the house. In such a case, the part of equity that belongs to the other spouse needs to be bought by the one wishing to stay back. At this stage, a refinance on the mortgage is found necessary. If a refinance is not sought, there is a risk of earning bad credit if the divorced partner staying in the house defaults on payment.

Title Right

You need to decide who between the two of you, wants to retain the titular right to the joint house. Make sure the other’s name is removed from the mortgage papers during refinance.

Settlement

Make sure both of you sign a legal agreement agreeing on the person who retains the title to the house, as the sole and exclusive owner of the property. The agreement needs to be notarized by both the parties. Hire a lawyer to bring about the settlement properly. The settlement has to be presented to the court and must be ratified legally. This court ratification is needed if the refinance has to be applied for and proceeded with.

Public Deed

You must also make a deed for quit claim and this deed must be filed in the public records of the state. Then, approach a bank or mortgage refinancing institution and apply for the refinance. Certain states have special rules that require you to provide an extra clause, making clear that the property is transferred in your name by a legal order or agreement. Your spouse needs to sign an approval on this but this does not mean that she or he will be involved in the refinance procedure in any way. Hire a qualified attorney to do this for you so that there is no misunderstanding.

Alimony

In case the court approves and all documents are passed as valid, the refinance will follow in the normal manner. At times the spouse who is accepting alimony objects to refinancing since he or she apprehends low alimony due to refinance. However, this is not to be. The spouse has as much right on the home as the equity awarded to him or her. Therefore it is really important to claim title retention and then seek refinance.

Credit Score

Make sure that you build up a good credit score. Pay off all your debts and clean your credit up. Dissociate yourself from any joint debts or investments you have had. Having a low credit score is detrimental to obtaining refinance during divorce. You may have to pay a very high rate of interest in such a case. Compare the quotes of various lenders. Shop before you zero in on the lender for a mortgage refinance. You do not want to mess up your finances after going through a divorce!