How to Keep the House After Divorce: The Equity Buyout Refinance
If the plan is for you to keep the house after a divorce, there are usually two jobs to do at the same time. Get the loan into your name alone, and pay your former spouse their share of the equity.
An equity buyout refinance does both in one closing. I am a mortgage broker in Oregon City, and this is the loan I close most often for newly single parents. Here is how it works and the three questions that decide whether it will.
What the loan does
You apply for a new mortgage on your own. The new loan pays off the existing mortgage that has both your names on it. If the decree says you owe your former spouse a share of the equity, the new loan is sized to include that amount, and the cash goes to them at closing.
When it is done, you own the house, you owe the new loan, and your former spouse has their money and no further tie to the property. Their name comes off title by deed and off the loan by payoff. Both halves handled.
Question one: how much equity is there, and what does the decree say?
Equity is what the house is worth minus what is owed. The decree, or the settlement you are negotiating, says how that equity is split. Sometimes it is half. Sometimes one spouse gets more of the house and less of something else, like a retirement account.
The buyout amount plus the existing loan balance plus closing costs is the loan you need. Whether that loan is possible depends on the next two questions.
Question two: what can you carry on your own?
The new loan is based on your income and your credit, not the household's. That is the part that scares people, and it is usually less bad than they fear.
Your income includes your job, and it can include child support and spousal support if it meets the rules. Lenders look at how long you have been receiving it and how long it is set to continue, and they want to see it in the decree and in your bank account. Cash in hand does not count.
Your debts include the new mortgage and everything else on your credit report. Joint accounts you are still on count against you until they are closed or refinanced, so the decree should deal with those too.
Question three: how is the refinance written, and how much time does it give you?
Most decrees that let one spouse keep the house set a deadline for the refinance. The clock starts the day it is signed. A lender needs documents, an appraisal, and time in underwriting. If something in your file needs fixing, you want months to fix it, not days.
This is why I ask to be in the conversation before the settlement is signed. A twenty minute call while the terms are still being negotiated means your attorney writes a deadline you can actually meet, and a buyout amount the loan can actually carry.
When the buyout refinance is not the answer
If you cannot qualify alone, even with support income, the options are to sell, to wait while you build income or credit, or in some cases to have the loan assumed with a release of liability if your loan type allows it. I will tell you which of those is realistic on the first call. I would rather you hear a no from me early than a no from underwriting in month three.
What I need from you to get started
Your decree or the draft settlement. Two years of tax returns. Recent pay stubs. Bank statements. If you receive support, proof it is coming in. That is one folder. I do the rest.
Not legal advice
Talk with your attorney about your settlement. I will work with them on the mortgage side, and I report back to their office on every referral.
I serve Oregon City, Clackamas County, Multnomah County, Washington County and the rest of Oregon. Message me and let me show you what the numbers look like on paper.
Becky Chambers, Mortgage Broker, NMLS #2814018. Freestone Mortgage, NMLS #2613454. Licensed in Oregon. Equal Housing Opportunity. For informational purposes only. This is not a commitment to lend. This is not legal advice.