When navigating divorce, the details surrounding real property can significantly influence mortgage financing outcomes. This article addresses commonly overlooked aspects to ensure optimal mortgage financing for the borrowing spouse.
Key Questions About Real Property During Divorce
- What’s it worth?
- How much do I get?
These are critical questions for the marital balance sheet. However, when one party retains the marital home, additional details must be considered for optimal mortgage financing.
Who’s on the Title and Why It Matters
Not all spouses are listed as owners on the property title. This doesn’t automatically prevent the non-titled spouse from refinancing the existing loan into their name. Once awarded the property, the non-titled spouse becomes a Successor of Interest, allowing them to refinance the mortgage into their name.
For an equity buy-out, if the borrowing spouse hasn’t been on the title for the previous twelve months, accessing the home’s equity might be limited.
Who’s on the Current Mortgage and Why It Matters
Even if the spouse retaining the marital home isn’t on the existing mortgage, new mortgage financing may still be possible without meeting previous continuity of obligation requirements. However, some issues to address include:
- Notification to the Current Mortgagor: When transferring ownership, notify the current lender to avoid triggering the due on sale clause. Inform the lender of the retaining spouse’s right to assume legal responsibility for the mortgage under the Garn-St. Germain Act. Note that assuming legal responsibility doesn’t release the original borrower from their obligation.
- Refunds and Escrow Accounts: When refinancing, overpayments or escrow account balances will be refunded to the spouse on the existing mortgage. Address how refunds should be handled, as the new owner will be responsible for property taxes.
- Access to Mortgage Information: If the borrowing spouse isn’t on the current mortgage, obtaining payment history can be challenging. Setting proper expectations and cooperating with the non-borrowing spouse can streamline this process.
Determining Real Property Value and Its Importance
There are multiple ways to determine property value, with the two most common being:
- Appraisal: Conducted by a licensed residential appraiser based on recent comparable home sales.
- Comparative Market Analysis (CMA): Completed by a licensed real estate professional, estimating what the property might sell for in the current market.
Understanding the perspective of each method is crucial. For refinancing and retaining the marital home, an appraisal may be preferable. For selling, a CMA might be better.
Refinancing Considerations
The mortgage lender will order their appraisal from a licensed appraiser. It’s advantageous to have the lender request the appraisal during the settlement process to use a consistent valuation, avoiding multiple conflicting values.
The Devil is in the Details
What may seem simple can be complex upon closer examination. Divorce Mortgage Planning takes a holistic approach, evaluating mortgage options in the context of overall financial objectives related to divorcing situations. A Certified Divorce Lending Professional (CDLP®) can help identify potential conflicts between the divorce settlement, financial planning, and home equity solutions.
The Role of the CDLP®
The CDLP® helps integrate the selected mortgage into long and short-term financial goals, minimizing taxes, interest expense, and maximizing cash flow. They assist divorcing homeowners in making informed decisions regarding their home equity solutions and mortgage financing opportunities.
Benefits of Incorporating Divorce Mortgage Planning
Incorporating divorce mortgage planning into the settlement process:
- Identifies possible solutions.
- Helps parties let go of counterproductive positions.
- Assists in taking stock of possibilities, resources, and answers regarding the marital home and other real property issues.
Successful Divorce Settlement
Effective communication and strategic negotiations lead to a successful divorce settlement. Incorporating divorce mortgage planning with a Certified Divorce Lending Professional results in better solutions and outcomes for divorcing couples.
Early Involvement is Key
Involving a CDLP® early in the divorce settlement process helps set the stage for successful mortgage financing in the future.
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