Divorce Mortgage - how to remove a coborrower during a divorce or separation

When going through a separation or divorce, if a mortgage exists with both parties as borrowers, the mortgage must be refinanced to remove one of the parties. A refinance is done to remove one borrower from future financial obligation.

To remove an individual from the title of a home, a deed must be signed, notarized, and recorded, but removal from the title alone does not offset the need for a refinance if both parties are on a mortgage to the home. Even if one person no longer has a legal ownership interest in the home, they still have a legal obligation and responsibility to loan payments if they are on the mortgage to the home.

In the current market, this can be a tough pill to swallow as many home owners are locked into very low interest rates from the 2-3% rate environment of 2020 & 2021. Refinancing in 2024 will almost certainly result in an increase in interest rate and payment, and this should be considered when negotiating the terms of a divorce or separation.

Is a legal divorce or separation agreement needed to remove a party from a mortgage or title?

The quick answer is 'no'. All that is needed to remove someone from a mortgage or title is a refinance (to remove someone from a mortgage) or a deed signed and recorded authorizing the removal of one party from title (to relinquish ownership).

It's important to remember that in order to refinance, the remaining borrower will need to either qualify on their own, or if they cannot, add a new cosigner to the mortgage. If cash is being taken out of the home to buy out an ex-spouse or partner, it would be considered a "cash out" refinance unless the legal divorce or separation document outlines the terms of a buyout, in which case the new loan would be considered a "rate/term" refinance. This is important to note because rate/term refinances typically offer better loan terms, lower rates, and allow a borrower to access more equity from their home than a 'cash out' refinance.

Important Considerations

When dealing with divorce or separation, it's often a stressful process, so you want to work with a lender that has an efficient process, allowing you to complete the transaction quickly and without additional layers of stress.

When looking at options, is there an actual "divorce mortgage"? There is not, as the restructuring of an existing mortgage to remove a borrower falls under the terms of a standard refinance transaction.

It's important to work with an experienced loan officer when dealing with a divorce mortgage situation to ensure the correct documents are requested up front. Underwriting will require a copy of the divorce decree or separation agreement, noting any alimony, child support, or separate actions required by involved parties. This is important to note because underwriting will factor in child support as a liability, but will not factor child support or alimony as income until there's an established history of receipt (generally 6 months), so this may affect qualifying.

John Meussner and his team are well versed in supporting customers going through the often-difficult process of divorce, and offer a streamlined loan process and the experience needed to ensure a low-stress transaction. If you have questions or may need to apply for a loan before or after a divorce or separation have begun, you can reach out to an expert here and we'll reply within 24 hours.