Should I Apply for a Mortgage Modification Before or After Divorce?
If you are facing a divorce, you have many decisions to make. If you are also having difficulty meeting your mortgage payment, the stress can be tremendous. Loan modification can be a beneficial tool in getting you back on track with your finances, but when divorce is on the horizon, you may ask “should I apply for a mortgage modification before or after divorce.”
What is Mortgage Modification?
Mortgage modification changes your existing terms to make your payment more affordable. It may include a lowered interest rate or changing a variable rate to a fixed rate. Your mortgage lender may agree to adding amounts to the total balance of the loan, a process known as capitalization. You may also be able to extend the loan from 30 to 40 years to lower the payments. The mortgage company may agree to one of these modification or may use a combination of several to get your mortgage payments lowered.
Divorce and Mortgages
Mortgages are often in the name of both spouses which means both are equally responsible for the loan. A divorce does not change your mortgage. What happens to your home will be decided between the two spouses, attorneys or the court. One spouse may keep the home while the other moves out, but that does not change their joint liability to pay the mortgage. If the spouse who is still living in the home stops paying, the other spouse is still responsible for the debt. There are ways to relinquish responsibility for a mortgage if you are no longer living in the home. One spouse may refinance the home so the mortgage is only in their name or the mortgage company may allow one spouse to assume responsibility and remove the other party from the mortgage. The other options is a loan modification. The question then becomes “should I apply for a mortgage modification before or after divorce?”
If you enter into a mortgage modification before the divorce is final, you will be asked to sign the modification documents, making you equally responsible for the mortgage even if you won’t live in the home and you were not required to pay under your divorce agreement. Your ex-spouse may not be able to refinance the loan in the future, keeping you responsible for the length of the loan. If your ex-spouse defaults, even if it is many years after the agreement was signed, you will be held responsible for the unpaid debt. This can have a significant impact on your credit.
Once the divorce is finalized, the spouse who remains in the home can apply for a mortgage modification on their own. This will release the other spouse from responsibility and they will not need to sign the mortgage documents. It also may be easier for a single person to qualify for a loan modification as it may be easier to demonstrate financial hardship. You will still need to meet certain qualifications, such as income and debt ratios, but because a divorce often significantly reduces income, you may be a better candidate for a modification.
If you or a loved one is facing divorce and are asking “should I apply for a mortgage modification before or after divorce,” contact the Law Offices of Georgette Miller and Associates at 1-866-964-6529 or fill out our contact form. We can help guide you through the process and help you get back on your financial feet.