Two incomes are better than one when it comes to making mortgage payments. Divorcing couples become well aware of this fact when struggling over who will continue making mortgage payments on their marital residence. Even though a divorce decree may be relatively easy to obtain when both spouses are agreeable, getting a lender to agree to a mortgage assumption or modification of the terms of a loan may be more difficult.
A divorce decree may direct your former husband to convey the marital residence to you by quitclaim deed and order you to continue making the mortgage payments. In this instance, he will likely request that the lender release him from liability for the loan since he will no longer have equity or ownership in the property. Unfortunately, for many couples, the divorce court does not wield the power to force a lender to revise the terms of its mortgage or invalidate a note through a divorce action. Unless it agrees in writing to release him, leaving you solely responsible for payment, the two of you will remain jointly responsible.
Due on Sale
Most mortgages contain a due-on-sale clause stating that upon a sale or conveyance of the property, the lender may call the loan due and payable in full and if not paid, foreclose its lien against the property. The federal Garn-St.-Germain Act enacted in 1982, however, prevents a lender from foreclosing a primary residence merely because property is transferred through death or divorce. A lender may refuse to release your former husband from liability or change the terms of its loan; however, as long as you are making the payments and complying with all other terms of your mortgage, this law should prevent the foreclosure of your home as a result of divorce.
Assumption and Qualifications
In order to assume a mortgage in your own name, you will have to individually qualify for the loan. Your credit score, amount of debt and value of your home may all determine if you qualify. Prepare to provide copies of your income tax returns, pay stubs, current appraisal, if required, and your quitclaim deed to the lender as well as pay assumption and document preparation fees. Both you and the lender will have to sign an assumption agreement setting out the terms of the assumption and releasing your former spouse from liability, although your lender may execute a separate release of liability form for your former spouse’s benefit. Even if your name was not on the mortgage, once you own the property and receive lender consent, you may assume the existing loan.
New Mortgage vs. Assumption
Obtaining a new mortgage, if you qualify, may be more beneficial than assuming an old one, particularly if interest rates are lower or payments more affordable. The old mortgage would be paid off with the closing of the new loan so that only you would be responsible for the new debt. Closing costs, however, might be less when assuming a mortgage as opposed to acquiring a new one.