Mortgage Assumption During Divorce: A Financial Guide

Mortgage Assumption During Divorce

For the American society of  2024, although getting divorced is not a taboo anymore, but it’s not a virtue if you overlook divorce’s repercussions, in financial matters as serious as Mortgage Assumption during divorce.

This is so because during divorce consideration, the ramifications are not only the end of your marital contract; but the emotional toll your financial breakup will bring in. Be proactive enough to do a timely financial assessment  of your mortgage, assets, liabilities, income and expenses; because it’s critical to know how your divorce will be settled in terms of the distribution of property and mortgage.

Begin by collecting the required documentation of the joined mortgage and how to for Assumption of the mortgage. It will be mandatory for a legal evaluation for the court’s decision. Do keep in mind that legal matters are different in each state; as each State has its own set of statutes concerning the division of property in a divorce, so keep yourself ahead of the curve – KNOW  BETTER!! 

FYI: Assuming a mortgage in a divorce translates as transferring the current mortgage on your marital home individually in your name. Which means legally taking the ownership for the mortgage payments solely on you.

Before getting into the nitty gritty details of mortgage assumption during divorce, you need to know some basic information about mortgage, its  related financial terms, and their correlation with marriage deed. 

What is a mortgage?

A loan type lended by a financial institution, usually banks; which the borrower uses to buy or keep a house, plot of land, or  some other type of real estate is called a Mortgage. The borrower is legally under the obligation to pay the lender over time, which can be in the form of instalments of continuous payments. The payments are further divided into principal amount and interest.

The mortgaged property is counted as collateral to secure the loan. In exceptional cases, where property is protected by a premarital agreement or trust, all property acquired during a marriage span  is counted as combined property or Marital Estate between spouses.

Mortgage and Divorce

Whether a mortgage is acquired during the marital period or the spouses have jointly obtained it; both are accountable for the payment of the mortgage loan. If the married couple utilize the option to sell their co-owned house; or convert current mortgage plan as a refinance option like assumption mortgage during divorce, then the divorce contract document adds up all those points so both the parties are saved from any credit or financial loss. 

A big challenge that  divorcing couples face is what to do with jointly owned mortgaged homes. In such scenarios, your options are contingent upon the financing of the home and related financial titles. Following is s

Following is some significant information you need to have about how divorce impacts your mortgage.

What Is an Assumable Mortgage?

You might have come across a story where your friend who is filing for divorce mentioned the plan to “assume mortgage post divorce” and seeked financial or legal advice in this aspect. So basically an assumable mortgage is a home financing loan when an outstanding mortgage is transferred from the current owner or two co-owners (spouses in this case) to the new and single buyer (one spouse post divorce).

If the buyer assumes the owner’s remaining mortgage, the buyer cannot, in most scenarios, buy another loan. When it comes to assumable mortgages there are many types of loans with certain considerations as laid down by the assumable mortgage contractual and legal clauses, that may include but not limited to the following:

  • An assumable mortgage is a legal loan document where payable mortgage and its conditions are transferred from the current owner to a buyer.
  • With higher interest rates, an assumable mortgage is lucrative to the buyer as they buy the existing loan with a lower rate.
  • Different loans like USDA, FHA, and VA can be assumable with certain criteria being met.
  • If you want to assume a VA loan, you should not be a military member.
  • Buyers have to check in the criteria requirement for mortgage assumption.

Important Terminology

I personally advise you  know some key financial terms  related to mortgage and assuming mortgage after divorce:

Assumption of Mortgage: This is the loan type when you take up or  assume the loan alone; from the seller/owner, of course you need the lender’s approval for this.

Joint Mortgage: If your house mortgage is in the names of two or more mortgage holders (spouses in case or marriage or divorce). Both of you as sources are jointly and severally under legal obligation to repay the mortgage.

Refinance: The act of  replacing a current mortgage with a new one, because it comes with  better terms, the interest rates get lower, and certain mortgage terms may differ.

Equity: The current market price of the home/property ownership minus the  mortgage debt is equity.

Foreclosure: The legal process which transfers a mortgaged property’s possession to the lender. We all have heard the story where one party fails to make payments which is like going against mortgage terms. The lender financial institution, normally banks you know, has a strict compliance policy on timely payments. 

Amortization: It’s a financial clause or binding in loan borrowing where as a lended you have to make regular loan instalment payments over a given period of time. Keep your notes that Amortization is a detailed information on allotment of every payment about  interest rates and interest amounts and of course the principal amount of the mortgage or any type of loan or financial debt. 

Prepayment Penalty: If you have paid your  mortgage as the borrower of the mortgage loan, then your mortgage lender may/can or will charge you a certain fee, this is to protect them as the lender so not to lose some part of their interest income due to early payment of the mortgage by the borrower. 

Community Property: You might have heard from your friends or family or somewhere else that their marital contracts are under the jurisdiction that as a married couple if they would acquire a property, that property will be divided as the couple apply for divorce; quite a common hearsay, right?

For instance: a mortgage that is co-owned by the spouses, is a community property; until one party chooses  assumptions of a mortgage during divorce.

Quitclaim Deed: This is basically a legal instrument that serves as document-proof to show transfer of  property between parties or between spouses per say. 

Separation Agreement: This is a legal document that has terms and conditions outlined concerning the distribution of assets, mortgage division, assumption of mortgage during divorce. 

What are the benefits of mortgage assumption during divorce?

Assuming a mortgage during a divorce offers several benefits, particularly if you’re the one taking over the loan.

Here are some key benefits:

  • Removes your ex-spouse from the loan: This is a pivotal step if a judge awards you the family home. It may also be a required step in your divorce settlement. This action simplifies the ownership and financial responsibilities by transferring them solely to you.
  • Protects your future equity: By putting the mortgage solely in your name, you safeguard any future home equity growth.
  • Granted complete property control: This is the dreamy-come-true part for mortgage assumption during divorce that as you have assumed the mortgage loan, now it lets you make decisions about your home solely, freely moreover with zero-intervention from  your ex-spouse as you do not need their permission or signature anymore.
  • A big save on your expense: Although the terms are dependent upon your  loan type and lender or financing institution, you can be lucky to  avoid closing costs and fees associated when you are refinancing or obtaining a new mortgage in case of mortgage assumption. 
  • Maintenance of desired loan terms: Here’s a bit of a happy-go-lucky scene: if your current  mortgage has a suitable  interest rate already then assuming the loan will let you retain these terms; because you know how the interest rates are continuously rising otherwise.
  • No more mortgage liability on your ex: Since you have assumed the mortgage, qualifying your ex-spouse to go buy another property, because now this mortgage is removed from their debt-to-income ratio concerns; great help, right? What a nice and generous step to move forward in life!!! 
  • Full property rights: Now that you have completed your mortgage  assumption process, it will grant you the right to sell, refinance, or borrow against the mortgaged property as there is no financial or legal involvement from your ex-spouse.

It’s important to remember that once your ex-spouse is removed from the mortgage, you become solely responsible for all future payments.

Ensuring proper documentation

Whether it’s the beginning or the concluding step in mortgage assumption during divorce, that proofs only exist in the document section, which can in the form of the quitclaim deed, so these should be correctly named. 

FYI: A quitclaim deed is a legal instrument that transfers OWNERSHIP in real property from one person to another. In the case of assumed mortgage during or after your divorce. This signifies  transfer of  the combined  property rights to the spouse who assumes the mortgage.

Additionally, in case there are other related documents of the co-owned house , which can be  insurance policies or homeowners association agreements, you should be careful enough to get those updated so as to reflect your sole ownership.

Concluding Statement

As a close friend’s advice, I recommend you consult with a professional financial advisor, and a real estate attorney. With a full understanding and empathy for your case, that you are already going through way too much in terms of emotions and finances; and that professional help demands more spending, but a layman is prone to err, as the information above is not exhaustive.

The legal and financial advisors will do a lot of work for you from reviewing the original mortgage documents, to making and understanding of the assumption agreement and the divorce decree to help you have things in order; so those are legally sound.

Paul Johnson

Paul is a reputable local house-buying professional, also a real estate agent (Virginia). Count on his nearly fifteen (15) years of expertise in being part of resolving any issues that may threaten transactions, being accessible, and answering questions, as well as remaining transparent throughout closing transactions. One of Paul's Favorite Quotes: "To Give Anything Less Than Your Best Is To Sacrifice the Gift."

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