Mortgage After Divorce 2025: Complete Refinance, Buyout & Removal Guide

4 Ways to Handle Your Mortgage After Divorce

Refinancing After Divorce: Complete Process

Step 1: Calculate Home Equity & Buyout Amount

Before refinancing, determine how much equity exists and what buyout amount is owed to your ex-spouse.

You'll need to refinance for $365,000 to pay off the existing mortgage and buy out your ex-spouse's equity share. This is called a "cash-out refinance."

Step 2: Check If You Qualify on Single Income

The biggest challenge: qualifying for the new mortgage on your income alone. Lenders evaluate:

Step 3: Can You Count Alimony or Child Support as Income?

Yes! Lenders can count alimony and child support as qualifying income if:

• • Payments are court-ordered in the divorce decree
• • You can document 3+ months of consistent payments already received
• • Payments will continue for at least 3 years after closing

This can be the difference between qualifying and not qualifying. A $2,000/month alimony payment adds $24,000 to your annual qualifying income.

Step 4: Gather Required Documentation

Step 5: Apply for Refinance

Shop with 3-5 lenders to compare rates and fees. Divorce refinances are standard transactions—lenders handle them daily. Expect 30-45 day closing timeline.

Mortgage Assumption: Keep Your Low Rate

If you have a mortgage from 2020-2021 with a 3-4% interest rate, refinancing at today's 7%+ rates could cost you hundreds per month. Mortgage assumption lets you keep the existing loan.

How Mortgage Assumption Works

1. 1. Check if Your Loan is Assumable: FHA, VA, and USDA loans are assumable. Most conventional loans are not (but some are—check your mortgage documents).
2. 2. Apply with Your Lender: The spouse keeping the home applies to assume the loan. Lender verifies income, credit, and ability to pay.
3. 3. Pay Assumption Fee: Typically $500-1,000 (vs. $3,000-8,000 in refinance closing costs).
4. 4. Release Ex-Spouse from Liability: Lender removes ex-spouse from the loan once assumption is approved.
5. 5. Handle Equity Buyout Separately: You'll need cash or a second mortgage to pay your ex-spouse their equity share.

Quitclaim Deed: Removing Ex-Spouse from Title

CRITICAL: A quitclaim deed removes your ex-spouse from the property title (ownership) but does NOT remove them from the mortgage (debt). Both steps are required.

What If You Can't Qualify to Refinance?

Option 1: Wait and Improve Qualification

If you're close to qualifying, wait 6-12 months while you:

• • Pay down credit card debt to lower DTI
• • Improve credit score (pay all bills on time, dispute errors)
• • Increase income (raise, promotion, side job)
• • Build savings reserves

Option 2: Get a Co-Borrower

A family member (parent, sibling) can co-sign the new mortgage to help you qualify. They'll be on the loan but not necessarily on the title.

Option 3: Negotiate with Ex-Spouse

If you can't refinance immediately, negotiate to remain co-owners for 1-2 years with a written agreement:

• • You make all mortgage payments (document everything)
• • Set a deadline to refinance (e.g., within 24 months)
• • Agree on consequences if you can't refinance (sell the home)
• • Have agreement reviewed by attorneys

Option 4: Sell the Home

If refinancing isn't possible and your ex-spouse won't wait, selling may be the only option. In a strong market, you can sell quickly, pay off the mortgage, and split the equity.

Protecting Your Credit During Divorce

Buying a New Home After Divorce

If you're not keeping the marital home and want to buy a new one, here's what you need to know:

Can You Qualify While Still on the Old Mortgage?

Difficult but possible. Lenders will count the old mortgage payment against your DTI unless:

• • Your ex has made 12+ months of payments from their own account (documented), OR
• • The divorce decree states your ex is solely responsible AND you provide 12 months proof they've paid

Best strategy: Wait until the old home is sold or refinanced in your ex's name only. Then you can qualify for a new mortgage without the old payment counting against you.

How Long After Divorce Can You Buy?

Immediately! There's no waiting period after divorce to buy a home. As long as you meet standard qualification requirements (income, credit, DTI), you can buy right away.

Using Alimony to Qualify for New Purchase

Alimony and child support can be counted as income for a new purchase (same rules as refinancing: court-ordered, 3+ months received, 3+ years remaining).

Tax Implications of Divorce Mortgage Decisions

Capital Gains Exclusion

If you sell the marital home, you can exclude up to $250,000 of capital gains from taxes (single) or $500,000 (if you sell before divorce is final). Requirements:

• • Owned the home for at least 2 of the last 5 years
• • Lived in the home as primary residence for at least 2 of the last 5 years

Mortgage Interest Deduction

Only the spouse making the mortgage payments can deduct the mortgage interest on their tax return. If you're both paying, you'll need to split the deduction based on actual payments made.

Property Transfer Tax

Transferring property between spouses as part of a divorce is typically tax-free. The quitclaim deed won't trigger capital gains or transfer taxes.

Real Divorce Mortgage Success Stories

Frequently Asked Questions

Key Takeaways