To Refinance or Not to Refinance, That is the Question.

Your house plays a major role in your divorce. As one of your most valuable assets, it should take a front seat in your agreement. But first ask yourself, do you want to keep your home or are you ready to start anew? And second, can you afford to keep your home?

If you do want to stay put, then refinancing your home can help you keep it. Refinancing can get you the cash needed to buy out your spouse’s share of the equity. (You can use online calculators to see what your new monthly mortgage payments will look like before making this decision.)

Say you have a $300K house and owe $200K on your mortgage. Your equity is $100K. If you’ve agreed to a 50-50 split, then you’ll need $50K to buy your partner’s share of the equity. You’ll refinance into a $250K loan and cash out the $50K. (This new loan is only in your name.)

If you do this, make sure your partner signs a quit-claim agreement or other legal documention so they are removed from the title. You don’t want to be stuck with the mortgage, yet your ex still owns part of your home!

In another scenario, you may have no choice but to refinance and remove your spouse from the loan. Remember, the title and the mortgage debt are two separate entities, so make sure to sign the legal documents removing the other from the title of the home. Unfortunately, if required in your agreement, you may have to refinance the home and the new mortgage loan may end up being more expensive than the existing one.

Be aware that if you refinance after the divorce, your new mortgage is based on your credit score, income and debt. If your income isn’t enough to qualify for the loan, you will want to get a co-signer. This person is fully responsible for the loan– so a parent or sibling may be an option.

Another factor that can challenge your easy breezy divorce: low credit score. Even if it is due to your spouse’s spending, it will hurt you. So what can you do? Bite the bullet and pay bills on time, even if they are not in your name. Make sure to get your credit checked to see which accounts may be affected. (You may catch mistakes in time to get yourself out of a tricky situation!)

On the other hand, you may be very ready to leave the house altogether. Living somewhere new is a great way to move on… literally. Sometimes divorce agreements give little time to refinance, so it may be sold with the net proceeds divided between partners. So selling your home could be in your best interest. Either way, knowing your options and having your titles in order can save you a lot of hassle. (Time and money, too of course!)

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