Two Main Challenges to a Refinance in a Divorce
If you have a home and you’re going through a divorce, either you or your spouse will likely need to refinance your home. But there are practical barriers that may make it more difficult to refinance than you think. Here are two main challenges to refinancing in a divorce:
- You Don’t Qualify – this is the biggest issue. To qualify for a refinance, you need a healthy income to debt ratio. But if you’re a stay at home parent that has been out of the work force, or a parent that is trying to refinance while still keeping up with your maintenance and child support, that may be impossible to reach. You may have also accumulated debt during your marriage or divorce, which could push you outside of a healthy debt to income ratio. Whatever the situation, you need adequate income to qualify for a refinance. If you want to keep the house, your spouse will offer you a time frame within which you need to complete the refinance. During this time frame, you may be able to work your way into a higher income, and thus have a better chance at qualifying. But don’t just agree to refinance six months or even two years down the line and not know the facts – if you ultimately can’t qualify, you’ll likely have to sell your home. So be sure that you can qualify before you agree to refinance your home.
- You Need to Buyout your Spouse – if you want to keep your home, you’re likely going to have to buy out your spouse’s share of the equity that’s in the home. With rising home values, it’s generally going to cost you a lot of money to do this. If, like most people, you don’t have a pile of cash laying around, then you may need to look into a cash-back refinance to provide your spouse with their buyout. In that situation, you will need to make sure that you can access enough of your home’s equity to pay your spouse, and that you can also qualify for that loan.
Be sure to talk to your divorce attorney about options for refinancing. Even if you don’t qualify for something conventional, a good divorce attorney will know the best options for keeping you in your home. Contact me for a free consultation to talk about the logistics of you or your spouse’s refinance.