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Is it difficult to refinance a mortgage during property division?

Trying to determine who will get to keep the family residence can be a difficult thing to achieve in many Tennessee divorces. Often, when a home becomes part of the property division process, one spouse will want to keep living in it and the other spouse will need to find a new place to live. However, even if the spouses can agree on who will keep the home, getting the mortgage transferred over to one spouse's name could prove hard to do as a result of mortgage loan laws and each spouse's credit rating, income and financial standing.

The more expensive the home, the more difficult it can be to get one spouse's name off the mortgage. For example, refinancing homes over $417,000 -- in most cases, this is the limit for government-backed loans -- can be hard to achieve. When refinancing a mortgage, lenders usually look at a combination of income and savings, and a divorce can affect those figures significantly. For those paying alimony and/or child support, their incomes will be lowered. For those receiving alimony and/or child support, banks do not typically count it as income until it has been consistently received for a year, and they will want to have proof that it will continue for three years into the mortgage.

When possible, one way to circumvent refinancing issues is to use money from a divorce settlement to increase the size of one's down payment. This could make it easier to secure a new loan and lower monthly payments. In other circumstances, spouses may agree to keep both their names on the mortgage -- which could affect the spouses' credit reports -- but might be the only viable solution to the problem outside of selling the home and both parties moving out.

Before signing a divorce agreement that involves the refinancing of a home mortgage, or involves the transfer of a real estate title, Tennessee residents may wish to discuss the matter thoroughly with their divorce attorney. Indeed, a divorce attorney will have important insight as to what problems could arise and how to avoid them during the property division process.

Source: The Wall Street Journal, "In a Divorce, How One Spouse Can Keep the House" Anya Martin, Nov. 05, 2014

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Goddard & Malmquist
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