How to refinance a mortgage after divorce

Your mortgage is a contract between the lender and everyone who signed the note. The CFPB explains that a divorce decree or property settlement can say which spouse must pay a debt, but it doesn't change the creditor's rights: the lender can generally still look to anyone named as a borrower until it releases them or the loan is refinanced or paid off.

That matters for both of you. The spouse who moves out stays on the hook if payments are missed, and the mortgage keeps showing up in their debts when they apply for their own home loan. The spouse who stays usually wants the loan, the title and the payments all in one name.

These two get mixed up often, but they do different jobs:

• A quitclaim deed (or other deed) transfers ownership. It takes your ex-spouse off the title, the record of who owns the home. It generally doesn't take them off the loan.
• A refinance pays off the existing mortgage with a new one. If only you sign the new loan, your ex-spouse's liability on the old one ends when it's paid off.

In practice, many divorce refinances involve both: a deed transfers ownership to the spouse keeping the home, and the refinance replaces the joint loan. How and when the deed is signed is a legal question. A family-law attorney can tell you what order protects both parties in your state.

• Refinance into one name. The spouse keeping the home takes out a new loan on their own, paying off the joint loan and, if agreed, the other spouse's equity. See our refinance options for the loan types.
• Assume the existing loan. The spouse keeping the home takes over the current mortgage and asks the servicer to release the other spouse from liability. The original rate and term usually stay the same.
• Keep paying the existing loan as-is. Possible, but both names stay on the debt, which may not satisfy the settlement.
• Sell the home. The sale pays off the mortgage and the remaining proceeds are split as the settlement directs.

Which one fits depends on what your settlement requires, whether you can qualify alone, and how your current loan compares with what a new one would cost.

If you're keeping the home, the settlement often says you'll pay your former spouse for their share of the equity. A refinance can fund that payment. How the loan is classified matters, because cash-out refinances generally come with tighter limits.

• Conventional (Fannie Mae). A refinance where one owner buys out the other, for example under a divorce settlement, is generally treated as a limited cash-out (rate-and-term) refinance if the home was jointly owned for at least 12 months before the new loan funds. All parties sign a written agreement setting out the property transfer and how the proceeds will be used. The spouse keeping the home can't receive any of the proceeds, and must qualify for the loan on their own.
• Not on title? Fannie Mae also generally allows a limited cash-out refinance when the borrower was legally awarded the property through a divorce or separation, even if they weren't on title when they applied.
• FHA. HUD's handbook lets the equity owed to an ex-spouse or co-borrower be included in an FHA rate-and-term refinance, documented by the divorce decree, settlement agreement or other legally enforceable equity agreement.
• Cash-out refinance. If a buyout doesn't meet those rules, or you also need cash for other purposes, a cash-out refinance may work instead, within its loan-to-value limits. Fannie Mae generally waives its six-month time-on-title wait for borrowers legally awarded the home in a divorce. If the payout also needs to clear other balances, see cash-out to consolidate balances. Our FHA cash-out refinance and VA cash-out refinance guides cover those programs.

The buyout amount is set by your settlement, not the lender. The lender's appraisal determines how much you can borrow against the home, so it helps to know roughly where the value lands before the equity split is final.

The new loan is underwritten on your finances alone: your income, credit, assets and debts, measured against the new payment. A few divorce-specific rules affect the math:

• Support you pay counts against you. Fannie Mae generally counts court-ordered alimony, child support or separate maintenance as a monthly debt when it has more than ten months left, and allows alimony to be subtracted from income instead
• Debts the court assigned to your ex may not count. When a decree assigns a debt to your former spouse but the creditor hasn't released you, Fannie Mae doesn't require the lender to count it, and HUD doesn't require 12 months of proof that the other party is paying it
• Your payment history still matters. Late payments on joint accounts before the split can still affect your credit, so check your credit reports early
• Support you receive may help. See the next section for when it can count as income

If you're close on debt-to-income, a different loan term or paying off a small debt can change the result. Run scenarios in our refinance calculator, then have a loan officer check them against program rules.

Support income can help you qualify, but only when it's documented and stable. Under Fannie Mae's rules, it counts only if you disclose it and ask for it to be considered.

• Fannie Mae (conventional). Generally needs a divorce decree, separation agreement, other written legal agreement or court decree showing the amount and terms; documented receipt of full, regular, timely payments for the most recent six months; and evidence the payments will continue for at least three years from application. Proposed or voluntary payments without a separation agreement generally aren't counted.
• FHA. HUD generally needs the final decree, legal separation agreement or court order (or a voluntary payment agreement), proof of receipt for the most recent three months under a decree or order, and evidence the income will continue for at least three years. Voluntary agreements need a longer documented history.

Continuance is where many files get stuck. If child support ends when a child reaches a certain age, or alimony is set to stop within three years, it may not count. Check the dates in your agreement against these rules before you finalize it.

If your current loan's terms are better than a new loan would offer, assuming it may be worth asking about. Fannie Mae lists a transfer to a former spouse in a divorce as a protected transfer, meaning the new owner can generally keep making payments without repaying the loan right away, and may be able to assume it. A release of liability for your ex generally requires the servicer to review your credit and finances first.

• FHA: HUD's handbook allows some divorce-related assumptions to be processed without a new credit review when the spouse staying on title keeps living in the home and has made the payments for at least six months
• VA, veteran keeps the home: VA generally doesn't require an assumption to release the ex-spouse; the servicer needs the divorce decree or separation agreement and a recorded deed transferring ownership to the veteran
• VA, the other spouse keeps the home: an assumption can release the veteran from liability, but the veteran's entitlement stays tied to the loan until it's paid off, unless an eligible veteran assumer substitutes their own entitlement

The CFPB has reported that some homeowners were told they had to refinance when an assumption was available, and that servicers must process assumption and release requests in a timely way. Ask your servicer in writing what it needs.

If you have an FHA loan, an FHA streamline refinance normally keeps every borrower on the new loan. HUD makes an exception in cases of divorce or legal separation: a borrower can be removed when the decree or separation agreement awarded the property and responsibility for payment to the remaining borrower, and that borrower has made the payments for at least six months. A streamline doesn't pay out equity, so it fits when no buyout is owed. VA borrowers can compare options on our VA refinance page.

• Talk to a lender early, before the settlement terms are final, to see what you'd likely qualify for on your own
• Work with your family-law attorney on the buyout amount, the deed and the timing; the lender will need the final decree or signed agreement
• Gather documents: income, assets, the decree or settlement, and proof of any support received
• Compare Loan Estimates for a refinance against what an assumption would look like
• After closing, check that the old loan shows as paid off on both credit reports

For the process from application to closing, see how refinancing a mortgage works, and for the fees involved, read the cost to refinance a mortgage.

Consumer Financial Protection Bureau (CFPB) guidance on debts after divorce and its report on homeowners' problems with servicers after divorce or death; Fannie Mae Selling Guide B2-1.3-02 (limited cash-out refinances, including buyouts), B2-1.3-03 (cash-out refinances), B3-3.4-02 (alimony and child support income) and B3-6-05 (monthly debt obligations), and Fannie Mae's homeowner guidance on transferring ownership; HUD Single Family Housing Policy Handbook 4000.1; VA Circular 26-23-10 on assumptions and spousal releases. Program rules change; your lender applies the version in force when you apply. This guide is general information, not legal or tax advice.

8Twelve is a mortgage broker, not a lender. We can check whether you'd qualify on your own, compare a refinance with keeping or assuming your current loan, and price the options across lenders in our network. For questions about your settlement, the deed or taxes, talk to a family-law attorney or tax professional.