Home loan after Divorce - The process of separating assests after a divorce is tedious. However refinancing coupled with a Quit Claim Deed, allows you to remove one spouse from the loan and deed of trust.This is usually accomplished with a Cash-Out Refinance, since the spouse that is reamining in the property will need to compensate the spouse that is leaving for their ownership interest in the property. What that ownership interest amounts to is often negotiated as part of the Divorce Decree.
The spouse that will be remaining in the house, after the divorce, will still need to qualify for the new loan on their own. This is why it is important that your mortgage broker have so many different types of loan programs.
One of the reasons it is important to refinance a property after a divorce is this. The co borrower that signs a Quit Claim Deed will have his/her interest in the property removed but the QC Deed does not always remove that person from the credit obligation of being a borrower on the loan.
Example: John and Mary divorced and John signed a QC Deed to remove himself from title on the property. The property was not refinanced and both John and Mary were still listed as co borrowers on the loan. Mary did not keep up with the payments and the property went in foreclosure. The lender has just as much right to hold John responsible for the defaulted debt because he was still a co borrower on the loan. The lender can post derogatory credit information about John and even sue John for the money owed.
There are different types of 100% loans. You can
either get 1 loan for 100% or an "80/20" loan. Speak to your mortgage
professional to see which program is best for you!
