Married couples tend to share their resources and their responsibilities. They then have to address their finances when they decide to divorce. Most couples who purchase real estate require financing. A mortgage takes weeks to obtain in most cases and involves a commitment that lasts for decades.
Couples often qualify for bigger mortgages and better terms when they combine their income and credit scores to qualify for a mortgage. People contemplating divorce don’t want to wait until they have paid off their home to move forward with their lives. They then have to worry about the implications of their joint mortgage.
What may happen with a shared mortgage when a homeowning couple decides to divorce?
Couples may need to make major changes
In all but the rarest of cases, divorced couples usually don’t continue to jointly own a home after the end of a marriage. They usually reach arrangements in which one spouse stays in the home while the other moves elsewhere. Occasionally, they may sell the home as a way of splitting the equity they have accrued during the marriage. In scenarios where couples commit to selling the home, they may have to share responsibility for the mortgage until they complete that transaction.
If one spouse intends to stay in the middle home, the situation may become more complex. The spouse staying in the home typically needs to refinance the mortgage. Doing so can be a challenge, especially if they have limited income or a mediocre credit score.
What they have to pay each month may be higher than the current monthly payment because they don’t qualify for the same terms they secured when they obtained the mortgage jointly with a spouse. If the spouse staying in the home needs to withdraw home equity, that can also have a major impact on the terms of the mortgage, including their monthly payments.
Spouses may need to work out arrangements that allow for alternate means of compensating the spouse leaving the home for their share of equity. Those seeking to retain the marital home may need to look into pre-approval for a mortgage to determine if staying in the home is a reasonable goal given their credit and income.
Recognizing that mortgages and real property can complicate divorce negotiations may help people better protect themselves. Most shared mortgage obligations end shortly after the completion of the divorce process.