Using Your Home Equity to Buyout Divorce Settlement
With home values on the rise, a cash out refinance can be a solution to access funds needed. Common ways to split the equity of a home in a divorce include, but not limited to:
- Selling the home.
- Buying someone out of a house during a divorce with a cash out refinance.
- Getting a 2nd mortgage.
The first step to take would be to determine whether one or the other wants to keep the home. Depending on the loan program, there will be guidelines that need to be followed and paperwork necessary for underwriting and processing the loan.
Divorce Settlement and Home Equity
When it comes to making this possible, three major factors will need to be considered to make this possible:
- Determining how much equity is in the house.
- Agreeing to who gets the house and how to split the equity.
- If the house is not being sold, determining what route is the best way to take when it comes to a cash out refinance.
Structuring a Buyout
First, one should consider if both are on the mortgage, or one is just on title. Being on just title shows who legally owns the home, but not necessarily financially responsible for the home. It could be as easy as removing someone from title, but both being on the mortgage can be more complicated.
Most lenders will not release the liability of a mortgage without refinancing and can affect everyone on the mortgage if a payment is missed. The former spouse remaining on the mortgage must qualify for the new mortgage with income, assets, credit, and collateral.
Each loan scenario is unique to a borrower, but there are traditional and non-traditional loan products that make this possible.
Non-QM Loans
For those who do not qualify for a traditional mortgage, there is a possibility that they may qualify for a Non-QM loan, which allows alternative documentation to prove income.
Removing Someone from a Loan
Removing someone from a loan is not as easy as it used to be because of rules and regulations that have been put in place to protect lenders and homeowners. Assuming a loan is an option if a loan is assumable – homeowners would need to talk to their current lender to find out if this is possible.
For loans that are not assumable, refinancing may be the only option when it comes to removing someone from a loan. The lender will require the new borrower(s) to qualify for the new loan for a mortgage assumption or divorce refinance.
