Refinancing A Spouse Off The Mortgage in NC

There’s a new Freddie Mac program that might help with Refinancing A Spouse Off The Mortgage in NC.  Most of us know that your name actually has to come OFF THE NOTE and Deed of Trust in order for you to be COMPLETELY “un-liable” (I’m not sure that’s a word, but you get what I’m saying).  For you to have complete separation of finances, their needs to be only ONE name on the Mortgage. That means refinancing the mortgage into one person’s name.

New “Special” Program for Refinancing A Spouse Off The Mortgage

When you are refinancing a mortgage to “pay off” one spouse, giving them the equity they might be owed in a home, it’s called a “Cash Out” refinance.  There are multiple risks for a Lender when you “Cash out” a mortgage – and so they are inherently more difficult to do than other types of mortgage transactions.

Recently, Freddie Mac added a new guideline that SPECIFICALLY addresses special purpose cash-out refinance mortgages to take a spouse off the mortgage. Guidelines for the program include:

• A full appraisal of the property must be done.
• The borrower and co-owner must have jointly owned the property for at least 12 months prior to the loan application. (Those who inherit an interest in the property are exempt.)
• The borrower and co-owner must have occupied the property as their primary residence. (Again, parties who inherit an interest in the property are exempt.)
• Borrower retaining sole ownership of the property may not receive any proceeds from the refinance transaction.
• The borrower and the co-owner receiving the buy out proceeds must provide a written agreement, signed by all parties, stating the terms of the property transfer and the disposition of the proceeds from the refinancing transaction.
• For this special purpose cash-out refinance mortgages, the borrower is not required to use loan proceeds to satisfy existing second liens (including home equity lines of credit) if the liens are subordinated to the new refinance mortgage and meet Freddie Mac requirements.

Now, the Cash Out will be limited to 80% of the Appraised Value of the home… but it does allow the refinance. It also allows us, in certain circumstances to ADD a non-owner occupant to the loan in order for the borrower to qualify for the refinance.  The “owner borrower” MUST show at least $1.00 a year in income to qualify with the non-occupied co-borrower.  Additionally, the other party must be directly related to the owner occupying borrower.  So this is a situation where a parent, or brother or sister could help family make this divorce an easier situation.

Things to Consider When Removing a Spouses Name off the Mortgage

We’ve seen so many divorce situations that actually “started” because of “money” problems.  Even before the separation  and divorce, there are bills that go unpaid.   Even if the “finances” are in good shape going into the divorce (meaning money is not what is driving the divorce) – we’ve also seen spouses max out credit cards they think the other party is going to get “stuck” with paying.

Depending on how things were financed, the original “owner” of the credit card (for instance), could try and hurt the other party.  One or both spouses can have a negative impact on their credit because of the divorce. This is why we suggest that each person in the divorce think about their credit scores – and take steps to protect themselves from the negative behavior of the other.

Okay – so assuming you have a good credit score (Hat Tip! Congrats! You’ve got that goin’ for you!) let’s look at the “finances” of removing a spouse’s responsibility from the mortgage note, and divide equity in the home during settlement.

• It’s going to cost you at least $2000 to refinance.
  • Now, if you have a $2000 mortgage payment, you might look at it like I do.  You see, when you refinance you skip a mortgage payment – so I figure it kinda’ washes out.
• With the money you are going to take out – how much is your new payment going to be?? 
  • This is the real issue.  Is that a payment, once you add the insurance and taxes that you can afford?
• If you are relying on child support or alimony or maintenance to make that payment, you’re facing another challenge. 
  • Qualifying.  That income might not be considered in qualifying you – so call us let’s go over your specific situation.

Just like the Mortgage, remember that just because someone SAYS they are going to take over the payments on a certain account does not MEAN that it will come off of your credit report!  In Fact, unless you ACTUALLY have yourself removed from the account, you are still obligated for that debt.

This means that when you go to apply for a mortgage, we will be counting those -payments against you.  We strongly suggest that you consider closing any joint accounts immediately that are not in use and removing your name from any accounts that you are a signer on.  If your name remains on an account they have, even if they pay the debts on time, if the balances exceed 30% of the limit on a credit card, your credit score will suffer too.

There are also FHA mortgage loan programs for those who have been through a trauma, like divorce, who have some credit issues as a result.  In some cases, we can make loans to folks who have gotten back on their feet, and have credit scores between 619 and 580.  Additionally, you might want to think about adding a non-owner occupied co-borrowerso that you can buy a house quicker after a divorce.

If you are a single parent, who is looking for information on how you can purchase the next house, here’s some more information on FHA Guidelines for Single Parents.  There are Single Parent Grants available to help with down payment – call us for details!

If you need more information about Refinancing A Spouse Off The Mortgage in NC– call us!  Steve Thorne 919-649-5058  We can help you buy a house, and counsel you on the steps you need to take to protect yourself in the process!