One of the most common questions I hear when a couple decides to divorce is, “Do we need to refinance our home in order to get my spouse off of the loan?”
In a word: yes.
It’s relatively easy to get a spouse off of title of the home, but not the loan. The only way to remove someone from the loan is to refinance.
Although this may not be the most convenient transaction to do at this critical time, it must be done.
If you choose not to refinance, both parties will remain on the loan, which requires the debt to remain on your credit reports. If either one of you wishes to
purchase another property, you will be qualifying for two loans!
Hopefully, with both parties cooperating, this can be done quickly and relatively painlessly. The spouse keeping the home must qualify on his or her income alone, while the spouse leaving the property will need to sign documentation agreeing the title to be recorded as “married, sole and separate property” for the spouse remaining in the home. (Assuming the divorce is not final at this time.)
Beside separating this asset, it’s important to separate all credit cards as well. As soon as possible, pay off the joint credit cards and close those accounts.
Begin to open individual credit cards to start building your own individual credit.
You may see a temporary dip in credit scores as you close these old credit cards. Essentially, you have “less available credit” when you close old accounts, but you must do this in order to take this debt off your credit report. Also, 15% of your score is based on credit history, which will be reduced with closing those old accounts. Except in the case of divorce, I generally encourage clients to keep old credit cards open.
It’s also important to realize that if you continue to have joint credit cards, you run the risk of absorbing any debt your ex-spouse incurs! This will also affect your credit score if your ex-spouse decides to go on a shopping spree, or worse yet, is late making payments!
Bottom line: I always suggest you close all joint accounts when divorcing.
Without a doubt, going through a divorce is one of the most difficult and emotionally trying times one will ever experience. Combine this emotional turmoil with trying to juggle the finances, and you have a recipe for overwhelm.
Be sure to reach out to professionals that can do some of the heavy lifting for you and will support you in this trying time!
Patti Handy is a Mortgage Advisor determined to make a difference in your financial well-being. She is an author of several books, including an E-Book entitled, 6 Steps to Financial Healing After Divorce which can be instantly downloaded for free at www.divorcesurvivaltips.com. She can be reached at Patti@PattiHandy.com or 661-618-1789 for any home financing needs.