Refinancing the Marital Residence When Spousal Maintenance is in Play
One of the most frequent questions we get is, “Can I stay in the house after the divorce?” You can if (1) your spouse agrees to it, or the Court orders it and (2) you’re able to refinance the property to take the other spouse’s name off the loan. You will also often need to buy out your spouse’s portion of the home equity. Separately, something besides just making your mortgage payments is to consider whether you can afford to own the home. Many people are emotionally attached to their home and avoid considering the financial responsibilities of upkeep and utilities, homeowner’s association dues, property taxes, etc.
The first step to staying in the home is getting prequalified with a lender. This tends to draw a clear picture if you can afford to stay in the house. Being prequalified also removes any qualms the other spouse or the judge may have about entering into an agreement to have the home refinanced into your name. Additionally, what is the point of negotiating to keep the house only to find out you cannot keep the house because you cannot secure the loan.
When someone has been the primary earner in the marriage, refinancing tends to go smoother. But when the party wishing to remain in the home has not been a part of the workforce or needs financial assistance from the other spouse, refinancing may become more difficult because they do not have the work history to back up their finances and actually qualify for the loan.
This is where clients might want to consider working with a Certified Divorce Lending Professional who can work to qualify them and can work with the attorneys to ensure that the language in your agreements and final Decree is such that refinancing will be possible.
There are varying buckets a mortgage professional will place your income into when trying to determine what kind of loan you qualify for. Spousal maintenance needs to be carefully outlined in order to be a qualifying form of income. This is where the six-36 rule comes into play. Many attorneys are unaware of this caveat that for people who are receiving spousal maintenance to have that payment count as income, they must both (1) have been receiving spousal maintenance for at least six months prior to refinancing, and (2) must be receiving spousal maintenance for at least thirty-six months after refinancing.
Being aware of this rule can, as you can imagine, impact negotiations, and it is easy for many attorneys to make mistakes that might cost their clients a chance at refinancing.
For example, the person who is being bought out will want to set a deadline for when refinancing will occur and require the house to be sold if it is not refinanced by that date. The standard length of time is 60-90 days. But if a spouse needs six months’ history of spousal maintenance payments to refinance, then they will be unable to get the refinancing done by the deadline.
This is just one example of what can go wrong in refinancing, and it’s why it’s better to know whether you qualify or what you need in order to qualify prior to entering into an agreement. Not knowing that information could cost you your home.