Removing Your Spouse From the Mortgage in Divorce

The question of who gets the family home in a divorce is fraught with difficult financial and emotional consequences. But even if you and your spouse have agreed that you'll keep the house—or a judge has awarded it to you as part of the property division in your divorce or legal separation—you aren't necessarily finished with the issue. You'll need to remove your spouse's name from the mortgage. Here's what you need to know.

Why Remove Your Ex-Spouse's Name From the Mortgage?

When you and your spouse sign a mortgage together, the lender can collect from either of you if the loan isn't paid. Even if you change the title to the house so it's in your name only, or your divorce agreement says your ex is no longer responsible, that doesn't change the lender's rights. If you fall behind on payments, the lender can still sue you, your ex, or both of you for the debt.

Because of this, divorce agreements often say that the spouse who keeps the house must refinance by a certain date or otherwise try to remove the other spouse from the mortgage. A judge can order a spouse to refinance or sell the home, but can't force the lender to let someone off the loan. Refinancing or getting an approved loan assumption is usually the only way to make sure your ex is no longer on the hook if something goes wrong with the mortgage.

Refinancing to Remove Your Ex From the Mortgage

Transferring title to your home won't get your spouse's name off the mortgage—although you should do that as well (more on that below). When you're keeping the family home in your divorce, you'll almost always need to refinance the mortgage by applying for a new loan in your name only.

When you refinance, you're taking out a brand new loan in your name, using the proceeds to pay off the old joint mortgage. The new mortgage controls who is responsible going forward, so your ex is no longer on the new loan.

Removing a co-borrower typically requires you to qualify under the lender's current standards based on your income, debts, and credit. When you think about refinancing, it's also important to consider interest rates. If current rates are lower than the rate on your old loan, refinancing could lower your monthly payment and make it easier to qualify on your own. But if rates are higher, refinancing to remove your ex could make your payment go up.

If your credit and financials aren't strong enough on their own to qualify for the loan you need, you'll have to come up with other options, such as making a larger down payment, asking someone else to cosign the loan for you, or borrowing money from family or friends.

Of course, you should take the need for refinancing into account when you're negotiating a house buyout. And if you're on the other end of a buyout, you'll probably want to make sure that your spouse has qualified for a refinance before you agree to it.

Can You Remove a Spouse From a Mortgage Without Refinancing?

In some cases, you might be able to assume the existing mortgage instead of refinancing. A mortgage assumption can be better than a refinance because it lets you keep the old loan's interest rate and saves on costs, but they are rare and still require lender approval. The main situations where an assumption might be available include:

• certain government-backed loans
• some adjustable-rate mortgages
• "successor in interest" transfers, and
• conventional loans with an assumption clause.

Even in these situations, the lender usually requires a full application and credit check, and must give written approval before the assumption is effective.

Transferring the House Title Into Your Name Only

In addition to removing your spouse from the mortgage, you'll need to make sure that the title (ownership) of the property is transferred to you. Although there are different types of interspousal transfer deeds, you'll typically use a quitclaim deed, which transfers your spouse's interest in the property to you.

When you refinance the mortgage, the escrow company will usually handle both the deed transfer and the loan paperwork at the same time. Your spouse signs the deed giving up their owneship interest to you, and you sign the new loan documents. Once the new mortgage is recorded and the old loan is paid off, your spouse's name comes off the title.

Getting Help With the Mortgage and Family Home in Divorce

If you’re hoping to keep your family home as part of your divorce, it’s a good idea to at least consult with a divorce lawyer. The same is true if you're willing to give up your interest in the property—probably in return for keeping other assets like retirement accounts.

An experienced family law attorney can walk you through the options for dealing with the family home in divorce and the consequences of different choices, help negotiate the best settlement that’s possible given your financial circumstances, and explain how a judge in your state is likely to deal with the family home if you aren’t able to reach a settlement. It's also a good idea to contact your loan servicer early to ask what options you might have for a loan assumption or refinance and what you would need to qualify.

If you're thinking of removing one spouse from the deed on your family home outside of the divorce context—such as when you want to refinance the mortgage in the name of the spouse with a better credit score—you should also consider speaking with an attorney so that you understand all of the legal consequences in your state.