Can I Refinance My House Before Our Divorce is Final?
- Why would I refinance my home in the face of divorce?
- Pros and cons of refinancing before a divorce is final
- Pros and cons of waiting to refinance until after the divorce is final
One of the most significant decisions you may face during your divorce is whether to refinance your home. If you do, you must decide whether to refinance it before or after the divorce is final.
Why would I refinance my home in the face of divorce?
There are several reasons why a person might choose to do a home refi during their divorce process. One of the primary reasons is to buy out their ex-spouse's home equity in the property. By refinancing the mortgage, the person can obtain a new loan for the house, which can include enough funds to pay off their spouse's share of the property. This allows one spouse to keep the home while the other receives their share of the home's worth in another form.
Another reason for refinancing during a divorce is to take advantage of lower interest rates. By securing a lower interest rate, the current mortgage payments can be reduced, making it more affordable for a single person to maintain the home after divorce.
Refinancing may also be necessary if one spouse cannot qualify for a mortgage on their own. In this case, refinancing with a co-signer (such as a family member) can help them retain the property so they have a place to live after the divorce.
Should you refinance before or after your divorce is final? Let’s take a look at the pros and cons of each scenario.
Learn more about how to refinance a mortgage loan, possibly with a new mortgage lender, in our article, Mortgage and Refinancing Basics after Divorce
Pros and cons of refinancing before a divorce is final
Pros
Get it over with: Refinancing before the divorce is final can provide closure and certainty, helping both parties move forward with their lives.
Interest rate might be better now: If interest rates are currently low, refinancing before the divorce is finalized can help secure a more favorable rate that may not be available later.
Streamline property division: Refinancing before the divorce is final can simplify property division by clearly establishing each spouse's financial stake in the home.
Tax benefits: Depending on the timing of the refinance, there may be tax benefits associated with refinancing before the divorce is final.
Cons
Future financial changes: If one spouse's financial situation changes significantly after the divorce (e.g., job loss or new debt), it may be more difficult to refinance the home at that point.
Emotional strain: Refinancing during a divorce can add stress and emotional strain during an already challenging time.
Potential delays: The refinancing process can be time-consuming, which could potentially delay the divorce proceedings.
Suggested: How to Create a Post-Divorce Budget
Pros and cons of waiting to refinance until after the divorce is final
Pros
Better idea of post-divorce financial situation: Both parties will have a clearer understanding of their financial situations after the divorce. This can make it easier to determine if refinancing is the best option.
Time to improve credit: Waiting to refinance can give each spouse time to improve their credit score, potentially securing a better interest rate on the new mortgage.
Reduced emotional stress: Postponing the refinancing decision until after the divorce can reduce the emotional strain associated with the process.
Flexibility in dividing assets: Waiting until after the divorce allows for more flexibility in dividing marital assets and determining who will be responsible for co-owned real estate.
Cons
Interest rates may rise: If interest rates increase, waiting to refinance could result in a higher mortgage rate and increased monthly payments.
Uncertainty: Waiting to refinance can create uncertainty about each spouse's financial obligations and future living arrangements.
Potential for conflict: If spouses cannot agree on terms of the refinancing after the divorce is final, this may lead to additional conflict and legal disputes.
Learn more about marital settlement agreements here.
At Hello Divorce, we’re knowledgeable about more than just the divorce process. If you have questions about what to do with your marital home, how to divide your retirement funds, or who can assist you with important financial calculations and decisions in divorce, schedule a free 15-minute call with us to learn about what we offer.
FAQs
Can I refinance my house before divorce?
Yes. Refinancing before divorce can remove your spouse from the mortgage and put the loan in one name, but you’ll need to qualify on your own income, credit, and debt-to-income ratio.
Why would someone refinance before divorce?
People refinance to keep the home, remove a spouse from liability, lock in a new interest rate, or access equity to buy out the other spouse.
What challenges can arise when refinancing before divorce?
Challenges include qualifying for the loan on one income, timing issues if support hasn’t been finalized, and lender requirements for divorce agreements.
Can spousal or child support count as income for refinancing?
Yes, but lenders typically require that support be documented in a court order and received for a certain period, usually three to six months, with proof it will continue for at least three years.
Is it better to refinance before or after divorce?
It depends. Before divorce, you may have more combined income to qualify. After divorce, you’ll have a final agreement that lenders can rely on. The right timing depends on your finances and goals.
Does refinancing settle property division?
No. Refinancing addresses the mortgage, but you still need a divorce agreement or order to divide equity, ownership, and responsibility for costs.
Steps to Refinance Your Home Before Divorce
Check credit and loan eligibility
Review your credit report and debt-to-income ratio to confirm if you can qualify for the loan on your own.
Gather financial documents
Collect pay stubs, tax returns, account statements, and property records that lenders will require.
Decide on refinance goals
Clarify whether you are removing your spouse’s name, lowering payments, or accessing equity for a buyout.
Apply with a lender
Submit your refinance application, disclose pending divorce if required, and work through underwriting.
Coordinate with your divorce process
Ensure your refinance plan aligns with property division terms and is documented in your settlement.
Close the loan and update ownership
Complete closing, sign updated deed if necessary, and confirm liability is removed for the spouse leaving the mortgage.
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