When spouses have accumulated valuable assets during marriage, they have a lot to handle during and after a divorce. Those who have purchased a home together have to make decisions regarding who stays in the home and also how they address home equity.
Frequently, the spouse who continues to live in the marital home refinances the existing mortgage. Doing so removes the other spouse from the note, thereby eliminating their obligations and freeing them up to obtain a mortgage for a different property later. While refinancing after divorce is common, so are issues during the refinancing process. The following are some common challenges that the spouse staying in their marital home may face when they attempt to refinance.
Refusal to sign a deed
Given that the marital home is often one of the most valuable shared assets, the spouse leaving the home is likely anxious to protect their interest in home equity. They may insist that they do not want to sign a deed until they receive equity from the spouse keeping the home. The problem with that expectation is that refinancing is usually only possible once the person taking on the mortgage has become the only person on title for the property. Refinancing can’t move forward until the other spouse signs a deed to remove their name from the title records.
Difficulty qualifying
Some people take for granted that they can easily qualify to refinance their mortgages after a divorce. They may have a good credit score and a job that offers a competitive salary. Unfortunately, qualifying for a mortgage as a single person is much more challenging than qualifying with a spouse. Particularly when factoring in the increased principal balance that may follow a withdrawal of equity to compensate a spouse, the spouse trying to refinance may find that they don’t qualify for refinancing or can only refinance with much less favorable terms.
Title surprises
Many things can happen during a marriage that could affect the title review process while refinancing. A construction professional who replaced the roof may have sought a lien against the property for the unpaid balance due to them, for example. A title review is necessary not just when purchasing the property but also when refinancing it. If there are issues with the title records for the home, then that can create a major obstacle for the spouse refinancing.
Those trying to settle high-asset property division issues may need to take certain steps to protect themselves. Pre-qualifying for refinancing a mortgage can be a smart move. So can conducting a thorough review of finances to determine if there are alternative options other than withdrawing equity to compensate a spouse. Having proper support and guidance can help people avoid common issues that occur when handling property division matters.