Are you one of those lucky people who refinanced in 2020 or 2021 and are the proud owner of a mortgage rate in the 2-3% range? Are you also in the process of or considering a divorce? If so, I want to discuss your divorce and a mortgage assumption versus refinancing at today’s much higher rates!
Sometimes the marital home can grow to become the biggest source of contention when divorcing. This causes anxiety for both partners. Do we sell the home? Does one of the partners remain in the home? Who is on the mortgage? Do we have to refinance? Must I buy my partner out to keep the house? Add in interest rates that are almost 5 times higher than they were just a few years ago, and things can get even more stressful.
But there’s a solution when it comes to your divorce: a mortgage assumption.
If you want to remain in your marital home, it is possible that you can assume your current mortgage and retain that rate instead of refinancing at a much higher rate.
What does “mortgage assumption” mean?
A mortgage assumption is a process that transfers the loan from one party to another with all initial terms remaining in place, including the interest rate.
Traditionally the loans that are “assumable” are FHA, VA and USDA which are government insured. Typically, conventional loans are not assumable. However, there are rules in place to allow a conventional loan to be assumed by the divorcing spouse who remains in the property. The biggest factor is that you must qualify for an assumption in the same way you would qualify for a purchase or a refinance.
How does a mortgage assumption work?
If you want to “assume” the current mortgage on your home you would:
- Contact the servicer of the current loan and state your intent.
- Request what the servicer requires of you for documentation if an assumption is allowed.
- Apply for the assumption; Provide your credit, income documents, and ability to pay and qualify for the current payment (PITI) on your own without your current or former partner.
- Not all assumptions are created equal; In some cases the original borrower is released from liability, in some cases the original borrower must retain liability in case the remaining spouse cannot pay.
Things to know about divorce and a mortgage assumption:
a.) When assuming a mortgage you are “assuming” the current balance of the existing mortgage.
b.) There is not a “cash out” option if you are required to do a “buy out.”
c.) Your partner/spouse would be required to quit claim from the property.
d.) An “assumption” takes a little longer than a traditional refinance or purchase. Expect the assumption to take 45-90 days and plan accordingly.
e.) Your lender may or may not require the property to be appraised depending on how much is currently owed.
I would love to be your lender, but sometimes in a divorce situation, a mortgage assumption makes more sense when one spouse wants to stay in the home, especially when minor children are involved. When assuming a mortgage you work with the lender that currently holds the mortgage to your home.
If you would like more information on mortgage assumptions, or if an assumption will not work for you in your situation, and you would like information on a refinance or purchase, please feel free to reach out to me at: firstname.lastname@example.org or on my personal cell: 847-293-2111
Jan Leasure, CDLP, is a mortgage lender and division president for Diamond Residential Mortgage Corporation. Early in her career, Jan received an award for her work on behalf of consumers by President Ronald Regan and the U.S. Office of Consumer Affairs. She was also nominated as Loan Officer of the Year by the Illinois Association of Mortgage Professionals several times. Prior to her career as a mortgage lender, Jan worked as a newspaper columnist, a junior high school teacher, and college professor! Learn more here or call Jan at: (847) 293-2111.