Navigating Marital Home Refinancing During Divorce: The Role of a Certified Divorce Lending Professional

Divorce is inherently complicated, and recent changes in the mortgage industry can add to the complexity. When a divorce involves refinancing the marital home, divorcing borrowers often seek to pull equity out of the home to buy out the other spouse’s equity ownership.

Although the divorce settlement agreement may outline the details of the transfer of ownership, it does not determine the type of financing available for the divorcing borrower.

Types of Marital Home Refinancing: Rate/Term vs. Cash-Out

There are two types of refinances available: Rate/Term refinance and cash-out refinance. Rate/Term refinances typically offer better terms, including lower interest rates and access to more equity. In contrast, a cash-out mortgage may have a higher interest rate and generally allows the borrower to access only up to 80% of the home’s value, which can be problematic when the goal is to access equity.

In 2019, approximately 13% of homeowners with loans owned by Freddie Mac took out around $91 billion through cash-out refinances, according to Freddie Mac data. Cash-out refinances peaked in 2006, with Freddie borrowers alone tapping into $320.5 billion in home equity.

Structuring the Divorce Settlement Agreement

The divorce settlement agreement must be structured to enable the divorcing borrower to refinance as a Rate/Term equity buy-out. This loan structure allows the borrower to access home equity without the higher pricing adjustment or refinancing limitations.

However, specific requirements must be met for the refinance to be structured as a Rate/Term equity buy-out. These requirements may include title seasoning issues and precise wording in the divorce settlement agreement.

The Importance of a Certified Divorce Lending Professional (CDLP®)

Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help set the stage for a successful refinance of the marital home. A CDLP® understands the recent changes within the mortgage industry and their impact on the divorce process and obtaining mortgage financing.

Now more than ever, having a Certified Divorce Lending Professional (CDLP®) on your professional divorce team is crucial. Their expertise ensures that divorcing borrowers can navigate the complexities of mortgage financing during divorce effectively.