Is it necessary to refinance in a divorce?

Question

We are getting a divorce and I am keeping the house. My wife asks me to refinance asap to pull her name out of the house, mostly to make it easier for her to buy a house in the future because otherwise lender still counts the current house's mortgage as her debt.

However, I just talked to another friend of mine who is in a similar situation and she said that refinancing is not necessary. As long as my wife proves to a lender that: (1) we are divorced, (2) an agreement that she's not involved in the house anymore, (3) evidence that I have been paying the mortgage with my own account (for a few months), then the house's mortgage is not counted in her debt. The only risk to her is that if I miss a payment then her credit score will be affected. Is that true, can you guys please confirm this?

Rate is high at the moment that's why I don't want to refinance.

Randy E. · Answer

If the situation was reversed, you would want you name off the loan ASAP.Your post reads like "I don't want to suffer (a higher rate) so I'll make her suffer (diluted credit and higher risk). You may not have intended that sentiment, but that's exactly what it is.Do the right thing. Make refinancing your highest priority and get her off the loan.Cheers,Randy

Cara Lonsdale · Answer

All of what you said is true. With your divorce decree, she should be able to convince a lender that this is not her obligation to pay.HOWEVER, you also (very casually) mentioned something else that is very true. She is STILL on the hook in the event of your default. Why would you want to leave her with that risk? And why would she want to carry it with her? It will not only affect her risk, but also her credit. The credit bureaus don't know that you have an arrangement in place. The loan will count against her credit score.If you want a clean break, make it a clean break. Refinance. Higher rate or not, it is just another consequence of divorce.You may also try calling your lender and asking how to release her from the mortgage obligation other than refinancing. My husband had a business partner that took out a loan under the business (which my husband was also responsible for), and when they severed their business relationship, my husband contacted the lender to see how he could be released from the loan since he didn't take it out, and he wasn't responsible for making the payments. The lender released him, and there was very little paerwork to complete it. Just an idea to try.

Edward B. · Answer

My experience is that most amicable divorces do not end amicably. If I were her and you got the house, I would insist on being removed from the note. It is best to sever all financial ties. I do not know if there is a way to do that without refinancing.

Andrew Postell · Answer

@Chris Penny this might not be up to any of you. If the judge/court/etc. states that a requirement of the divorce is to have the property refinanced then it might be forced upon you. Now, assuming that it is NOT forced upon you then yes, this loan could absolutely be held against the other co-signer on the note. And if you miss a payment it will reflect on their credit too. It is possible for her to go apply for a mortgage and the bank see in the divorce decree that she is not responsible for the property. That particular bank could exempt her from it. But not every bank will follow that rule. And if she applies for certain loan types a loan type might not allow it either. It's definitely a tough spot to be in but that's the scoop on it.

Zach Lemke · Answer

@ Chris PennyLike Andrew Postell said, it will depend on the individual bank whether or not they accept the divorce decree as sufficient enough. I have a borrower right now that is waiting on her ex to refinance their previous home because she cannot qualify for a new property with their previous note still in her name.

Chris Mason · Answer

When do you think you will sell that house?

Chris Penny · Answer

Thanks. Honestly, I think so too, just looking for the best option if any. If I were her I would want my name to be totally removed. Why bother with any risk?

Jon Holdman · Answer

The only way your soon-to-be-ex wife will be "cleared off the debt of the house" is to refinance into just your name. Maybe she can work around it as your friend describes, maybe not. But if the divorce decree states that she is to be removed from the debt you will need to refi. To remove her from the title you will need to create a new deed with "you and her" as the grantor and just "you" as the grantee.

Chris Penny · Answer

Thanks for your answer @Andrew Postell . We agree on an uncontested divorce so mostly we just make an agreement stating which asset belongs to whom. The only condition is the above-mentioned one that my wife is cleared off the debt of the house and removed from the title.