If a marriage ends, what happens to the house and the mortgage?
It’s important to know the plans for the home. You can refinance to remove one person from the loan or sell the house.
Texas is a community property state. A refinance may not be necessary if you dictate in the divorce decree who will be obligated to make the payments. However, the downside is that the departing spouse’s credit is still tied to the home. If the occupying spouse misses a payment, it would still negatively affect the other’s credit. That’s why I recommend refinancing.
The timing will dictate whether an owelty lien is used. In Texas, if you’re trying to refinance to remove one spouse, many times you need to take cash out to pay them their share of the equity. Texas has limits for the maximum loan-to-value you can have on a cash-out refinance of 80%. Depending on what the home appraises at or the agreed payment, it may or may not be enough equity to take out. The alternative is the owelty lien, which gets put on the property for the agreed-upon amount and prevents the occupying spouse from refinancing or selling the property without guaranteeing payment to the departing spouse.
It’s the most secure way to get equity out of the home. However, it needs to be agreed upon before the divorce is finalized. Sadly, I many people come to me after the divorce is already finalized, so this option is off the table.
Selling the property releases both parties from the obligation of the mortgage, but they both still need to move somewhere. That’s why it’s still important to speak with a mortgage lender to get the situation resolved.
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If you or anyone you know is in this situation and needs guidance, don’t hesitate to give me a call or send me an email. It would be my honor to help you through this process.