Refinancing the House During a Divorce
Divorce affects thousands of couples, and the figures keep skyrocketing. After the divorce, the daunting process of property division sometimes hits hard for most divorcing couples to what each party should be entitled. It’s even more challenging for spouses who don’t have a prenuptial agreement at the time of divorce.
Under the Louisiana civil code, community property law is precedent over other underlying property division laws for any assets acquired during a marriage. Home property is a community property in Louisiana, which remains highly debatable in case of a divorce. Mutually agreeing to divide your home property or refinancing are the standard options for marital residence settlement. This guide explains when it’s sensible to refinance the house, whether a cash buyout or selling the home might be the necessary option, and the best time to refinance during a divorce.
When Does It Make Sense to Refinance the Home?
Any spouse willing to keep the family home after a divorce might consider refinancing the most viable option and refinancing the home to buy out the other spouse’s interest in the property, giving full ownership to the other by paying an amount equal to their interest. To determine a party’s house equity amount, the party subtracts the outstanding mortgage balance from the house’s value. However, other factors determine a spouse’s share of equity.
- Whether the house is a premarital asset, it’s a consideration of who purchased the home before the incision of the marriage with separate funds.
- Whether an existing prenuptial agreement covers the home or its equity.
- The contribution made by either spouse in a separate or community property during the marriage tenure.
- The state from which you live. Couples domiciled in Louisiana are subject to community property rather than an equitable distribution ratio. Community property applies to those married outside the state but moved to Louisiana.
Refinancing aims at accomplishing various objectives for the party’s interest. Below are some reasons a party might choose to refinance the home after a divorce.
What Are the Reasons to Refinance After Divorce?
To Remove a Spouse From the Mortgage
For married couples, the financial responsibility is equally liable to both parties for the matrimonial house. However, after divorce, the party willing to retain the place is only subject to a new loan in their name. Refinancing is necessary To offload the burden of foreclosure if the remaining party fails to pay the house loan. Removing a spouse means the other party enjoys full ownership of the home when the other spouse signs a quitclaim deed.
To Buyout a Spouse
Any spouse willing to get equity out of the home should consider paying out the other spouse’s share of the house. Cash-out refinance is the best approach form of divorce house buyout. It’s also the easiest way of owning a home, easing the burden of digging deep into retirement funds or other assets to acquire a new home.
To Access Home Equity
Refinancing can supplement a spouse’s income, pay for home improvements, pay debts, or fund other projects. This move provides access to home equity rather than just buying out a spouse.
To Change Mortgage Terms
It’s much more convenient to refinance if the interest rates are generally lower than when the couple commenced the mortgage. For a more affordable and stable loan, the spouse may consider extending the mortgage length or changing other terms through refinancing.
The process of divorce can be seamless, where the parties voluntarily agree to divide without much contestation. However, the matter can also turn complex with several variable interests from each party. At this point, the case may call for legal intervention through the state department or an attorney. Notably, the spouse with children’s custody will have an advantage of the home if they are still minors for their welfare.
When Is the Best Time to Refinance?
There are different options for time to refinance depending on the stage of the divorce.
Refinancing Before Filing for Divorce
Refinancing before filing for divorce is always the best time. It’s the easiest and quickest path, since marital status indicates that you are still married. Once refinancing has been successful, removing the spouse from the mortgage loan is more effortless.
Refinancing During Divorce
Refinancing is a long, tedious process if you have already filed for divorce. It involves providing an official written agreement to your mortgage lender highlighting the terms of house division between you and your spouse. The mortgage lender considers your financial status and monthly debts.
Refinancing After Finalizing the Divorce
It’s the last option for refinancing. Once the divorce case is determined and finalized, one of the parties may be required to pay alimony or spousal support and maintenance or child support, which the mortgage lender considers in your debt-to-income ratio. The proceeds from alimony, maintenance, or child support are an excellent source to refinance your home.
What Are Other Options in a Divorce?
In some instances, refinancing after divorce can prove impossible. The spouse can consider other options, such as;
Selling the Home
While this can be the simplest and easiest process, it can be emotionally taxing with a long-term financial impact. Purchasing a less expensive new home after selling the house is the best alternative to refinancing.
Take Cash Out
Cash-out is enough home equity to get cash from your house for the next home. Disposing of some assets to add to the cash-out can assist in acquiring a new home.
Wait to Refinance
Waiting to refinance gives time for the home’s value to increase, decreasing the mortgage balance and increasing the credit score. It’s risky as the interest rates could also increase, and the credit score could be affected by late or missed payments.