Breaking off a marriage or relationship is never easy but when you have a house and a mortgage on top of that, it can be even more complicated. If you’ve purchased the house together it’s not as easy as simply walking away. Regardless of whether the relationship has fizzled or not, the mortgage is around until it is paid off. So what can you do if you have a mortgage with another person but that relationship is now severed?
Tight lending requirements often make it a unique obstacle for couples that want to “untie the knot” these days and even though we’re not where we were 10 years ago, it still can be a tricky situation. A mortgage is typically the biggest liability a couple has to split and even though divorce is not easy, divorcing a mortgage is even harder.
Regardless of how you feel about each other, your lender still considers you liable for the mortgage unless you sell the house or refinance. These are two options that you could take. One party can refinance and pay out the other, or you can sell the property and split the equity in half. If either of those two options is not possible, there is another route. One big idea to keep in mind is to try to keep your emotions outside of the situation and focus just on the finances as a product. I want to be able to help people get through this emotional turmoil and show them the options that could work for their situation. Here are several options to consider after a divorce or break up.
Sell the house.
This is probably the easiest way to put this joint debt behind you. You can sell the house and split the profits. But of course, if someone still wants to stay in the house or need some more of the profit, that’s a situation that needs to be dealt with through lawyers.
If you have to sell the property with a short sale, meaning that you owe more on the house than it is currently worth, the credit score of both borrowers could be affected. Unless the bank agrees to release the borrowers from the liability, running it as a short sale could harm your chances of getting another house or even a rental option in the future. It’s important to understand all ramifications from a short sale or foreclosure.
Read More: 7 Simple Steps to a Refinance
Refinancing the loan under just one person could be another solution. You can refinance if you’re not underwater on the mortgage and the spouse that wants to refinance has sufficient credit and income to qualify for refinancing and soul payment of the property. Of course, you have to convince the other spouse to let go of the property and it usually means paying off the other spouse in order to keep the home.
If one of you is planning on keeping the house but you don’t want to spend money on a refinance, you might consider a loan assumption. Depending on the type of loan, some lenders may let one person assume the mortgage as long as that person has sufficient income to make the monthly mortgage payments.
Keep the mortgage.
Depending on your relationship now, if you can’t assume the loan, refinance, or sell the home, you must come to some type of agreement to leave the mortgage as is and ensure that the other party keeps up with their half of the mortgage payments. Of course, this is a risky approach but it can work in certain situations. Most financial experts don’t recommend staying married to their mortgage when you break up with the other party but this could work if there’s no other resolution.
I don’t mean this to be overwhelming but there are a lot of options and variables to each of these situations. One of the best things to do is to try to keep your emotions out of it for the time being and try to work on a solution that works for both of you.
Give me a call. Let’s talk about the options and how you can free yourself from the financial connection of your spouse or partner and how you can benefit going forward.