Divorce Refinance Option

Reblogger
Real Estate Agent with HomeSmart Realty West & Lend Smart Mortgage, Llc. CA01938972, CA-DBO1483386

This post from George Souto hold highly valuable information that might just make you the immediate best friend to your clients for life.

 

Thanks, George!

Original content by George Souto NMLS #65149

There are major property issues when a marriage ends in divorce.  The same is true when two people who are not married purchase a property together and then decide to go their separate ways.  One of the issues that pops up all the time is how to handle the distribution of the equity in the property.  In the case of a divorce most of the time the courts decide on how that will be handled.  When neither spouse wants to keep the house the course of action is simple, they sell the house and split the equity.  But it is not so simple when one wants to keep the house and has to give the other spouse their share of the equity in the property.

The same holds true for two unmarried people, when their relationship comes to an end.  They are faced with the same two options, but in their case it is a little more complicated because there is no court order to dictate how the property will be divided.  Matters become further complicated when there is not enough equity in the property to do a normal Cash-Out Refinance.  Fannie Mae requires 80% Loan-To-Value (LTV), and FHA require 85% Loan-To-Value (LTV) to be retained in the property after the refinance in order to do a Cash Out Refinance. 

The LTV Cash Out Refinance requirement often creates a dilemma for both spouses or co-borrowers when the property does not have enough equity to meet the Cash Out Refinance LTV requirements, and neither spouse or co-borrower has enough funds to buy out the other.  When this happens they are left with no choice but to sell the property.  However FHA and Fannie Mae have a refinance option for these situations, which is not well know.

FHA

No Cash Out Refinance - Refinancing To Buy Out Title-Holder Equity:  Under this option the spouse or co-borrower retaining the property can refinance the property up to 97.5% LTV in stead of 85% LTV.  This is a huge advantage, especially when a property has declined in value or has not gained enough equity for a normal FHA Cash Out Refinance.

When the purpose of the refinance to purchase the equity of the other spouse or co-borrower, FHA will require the remaining title-holder of the new refinance loan to buy out an other title holder's equity, if the equity to be paid is:

  • Considered property-related indebtedness, and eligible to be included in the new mortgage calculation.
  • The title holder who will retain the property must obtain a divorce decree, settlement agreement, or other legally enforceable equity agreement to document the equity awarded to the other title holder.
  • Title-holder buying out the other title-holder's equity may not receive any of the proceeds from the refinancing.  Also the title-holder buying out the other title-holder's equity must be able to qualify for the new refinance with just their own income, and meet all other FHA No Cash Out Refinance Guidelines.

Fannie Mae:

Limited Cash-Out Refinance Transactions:  Refinances To Buy Out An Owner’s Interest:

Under this Fannie Mae option the spouse or co-borrower retaining the property can refinance the property up to 95% LTV in stead of 80% LTV.  Again this is a huge advantage when a property has declined in value or has not gained enough equity for a normal Fannie Mae Cash Out Refinance.

In order to qualify for this Fannie Mae option the spouse or co-borrower retaining the property MUST meet the following:

  • A transaction that requires one title-holder to buy out the equity of another owner (as in the case of a divorce settlement or dissolution of a domestic partnership) is considered a limited Cash-Out Refinance if the property was jointly owned for at least 12 months before the date of the mortgage application.
  • Both parties must sign a written agreement which states the terms of how the property is to be transfer, the purpose of the property transfer, and use of funds from the refinance.
  • Except in the case of recent inheritance of the subject property, documentation must be provided to indicate the property was jointly owned by both parties for at least 12 months before the date of the refinance application.
  • Title-holder buying out the other title-holder's equity may not receive any of the proceeds from the refinance. The title-holder buying out the other party’s equity must also be able to qualify for the mortgage of  the new refinance with just their own income, and meet all other Fannie Mae's Limited Cash Out Refinance Guidelines.

I hope this helps those who are reading this who may find themselves in this situation, or if you are a Realtor, to help advise your Clients on what to do.  As always it is OK to give some initial advice, but make sure you contact a knowledge Loan Originator to provide further guidance, and guide through the process.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Posted by

Sandy Padula & Norm Padula, J.D., GRI
CA DRE# 00902455 &  CA DRE#01938972, FL Bkr# 3090255 & NMLS#1483386

Home Smart Realty West

Lend Smart Mortgage, Llc.

760.985.2055  Sandy
858.444.7060 & Norm

SDLuxHomes.com

PRESENCE ~ PERSISTENCE ~ PERSEVERANCE

 

 

 

Comments (47)

Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Thanks for reblogging this!  For those who have to go through divorce, this may ease the burden somewhat!

Jul 17, 2017 11:47 AM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Sheri Sperry - MCNE® Thank you so much! 

Jul 17, 2017 02:17 PM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Sandy and Norm

The person going through a divorce refinance needs a very good mortgage broker to create a successful mortgage closing.

Good luck and success.

Lou Ludwig

Jul 18, 2017 06:08 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

You are correct, Lou Ludwig in that all the 'pieces of the puzzle' must come together smoothly. I think successful real estate agents should be renamed property transaction conductors since we must coordinate all the right pros at the proper time to facilitate the transaction.

Jul 19, 2017 03:50 AM
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is an excellent selection for a reblog. Have a great day and an outstanding weekend.

Jul 21, 2017 04:23 AM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Roy Kelley Many thanks!

Jul 21, 2017 04:42 AM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Sandy and Norm

Getting a mortage refinance in a divorce situation can be tricky.

Good luck and success.

Lou Ludwig

Jul 26, 2017 07:47 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

A Thursday Thank you Lou Ludwig !

Jul 27, 2017 03:45 AM
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

Stopping by to hope you had a good weekend. I was too busy to really enoy it, almost  like a need a weekend from weekend Sandy Padula and Norm Padula, JD, GRI NMLS#1483386 

Jul 30, 2017 03:40 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

I know exactly what you are writing about, Scott Godzyk I have the same feeling!

Jul 31, 2017 04:55 AM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Sandy and Norm

There is a lot of interest in your post.

Good luck and success.

Lou Ludwig

Jul 31, 2017 01:18 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Not my post, Lou Ludwig , but George Souto 's. Thanks though!

Jul 31, 2017 02:12 PM
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

George always provides such wonderful common sense information that I either didn't know or wind up sharing with someone shortly after reading it!

Great one to re-blog, Norm!

Hope you have a fantastic Friday!

Aug 10, 2017 08:46 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Yes, he does, Debe Maxwell, CRS !

Thank you!

Aug 11, 2017 04:40 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Norm for a second I thought you were doing a Reblog from our friend Sally K. & David L. Hanson  then I realized who else but our other friend George Souto  would write this:)Endre

Aug 17, 2017 10:17 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Ah; the truth comes out Endre Barath, Jr. you DID read the post!

Aug 18, 2017 11:20 AM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Sandy and Norm

Your post continues to receive a lot of interest.

Good luck and success.

Lou Ludwig

Aug 20, 2017 07:33 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Nowhere near as much as your posts, Lou Ludwig ; Thanks!

Aug 21, 2017 07:27 AM
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

A very useful post and info to share with your readers, Sandy Padula and Norm Padula, JD, GRI NMLS#1483386 ... as too often, they are not aware of the options available to them.  George Souto proves himself an excellent choice for those in his service area going through this trauma.  While going through a divorce, it's no time to work with a rookie LO or one uneducated to its proper transacting ...

Gene

 

Aug 31, 2017 12:13 PM
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Thanks, Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi and for many it is crucial for a refi to settle the property disputes, so  knowledgeable MLO is certain to assist the process. 

Aug 31, 2017 01:07 PM