The Hottest Topic in Divorce: Mortgage Loan Assumptions

Mortgage loan assumptions are big business right now and most people going through divorce don’t know that they can, in fact, assume their loan due to the circumstances of divorce.  In case you aren’t familiar with the term, a mortgage loan assumption in divorce is when one spouse takes over the loan, meaning you don’t have to get a new mortgage, and your rate stays the same!

I think there are still a few mortgage companies out there that are not allowing the assumption of a loan but most are. Asking the right question in the right way is the first step to getting a mortgage loan assumption.

So first off, Fannie Mae, Freddie Mac and most conventional mortgage loans state clearly on the Closing Disclosure that they “will not allow assumption of this loan on the original terms.”

But what most people don’t know is, when inquiring with the servicer, if you are specific and ask if the loan is assumable “due to divorce” it could make a difference. Companies will make an exception in cases of divorce, but you have to ask.

In other words, it is key that you mention that you are going through a divorce.

What’s frustrating is, I have found that many attorneys and mediators do not know this and actually advise their clients against disclosing that they are going through a divorce for various reasons.

What consumers need to understand is that mortgage loan assumptions have not been in the forefront for many years, largely because there was such little need, as interest rates declined for so many years that it was actually advantageous to refinance versus assume a mortgage loan.

Once you decide to try for a loan assumption

Figuring out if the loan is assumable is the first step but you are not quite out of the woods because you will need to fully qualify on your own, just as you do if you were taking out a new mortgage or refinancing a home loan.

How long does a mortgage loan assumption take?

Most assumptions take approximately  6-9 months.  First because the assumptions department within the servicer is overwhelmed and inundated with assumption requests, and second because this is a consumer direct relationship meaning you are not dealing with a loan officer that is guiding you through the process and going through the pre-qualifying piece with you upfront.

How do you submit a mortgage loan assumption? It seems confusing.

As a consumer, you may not realize or understand what qualifying employment and income is, especially if your income is derived from any source outside of fulltime W-2 employment.  You might be making great money and comfortably able to afford your monthly housing payment but underwriting guidelines may not recognize this as qualifying income because the guidelines are very specific in how income is calculated for the purpose of a mortgage.  If you are part time employed, working two jobs, self-employed, W-2 commission based, a 1099 employee or planning to use child support or maintenance to qualify, it is not simple or straight forward at all and you will need some guidance.

Employment and income are just one piece of the equation.  Your credit and credit score will play into your qualification, hugely!  Did you know that one late payment to your credit card can drop your score by 50-60 points?  A late payment on your mortgage will drop your score even further and will likely kill your chances of being able to assume your loan. If the servicer can find any reason to deny your loan, they will.  A mortgage late in the last 12 months is hard stop.

Credit problems arise often during divorce and it’s not always deliberate but may be a missed payment due to not living in the home or being scattered and unorganized during the divorce process.  It is incredibly important that you maintain your good credit standing always but especially when you are applying for a mortgage.

Fortunately, I help with this whole process. I am a mortgage lender, a Certified Divorce Lending Professional and a Divorce Mortgage Planner. My role is to:

1. Help you determine if keeping the marital home or selling and buying a new home makes the most sense. I also help with mortgages and refinancing.

2. Assist you through the assumption process should you choose to keep the home, and help you find ways to access your equity or strategize with the marital assets to equalize the equity in the home.

It is so helpful to plan and run out the numbers in all of the possible outcomes, so that you end up with the settlement that works for you and your post-divorce life.  My goal is always to keep you in homeownership whenever possible!

I am here if you’d like a complimentary consultation. Remember, there is always a solution, but asking the right questions—including what makes the most sense financially and for your emotional wellbeing, is what will give you the life you want and deserve.

Karla Kyte is a Branch Manager and Originating Loan Officer at Cross Country Mortgage. She runs a successful team of high energy loan officers and assistants who are eager to help you through the home-buying process! From day one, over the last 25 years, Karla has built a successful business on referrals, which is why she and her team are committed to educating buyers on their financing choices throughout the process.

In addition to holding a mortgage license, Karla is also a Certified Divorce Lending Professional (CDLP). In all her years of doing mortgages, she could never understand why divorce attorneys did not consult with a lender before they put demands on clients that were not achievable due to lending guidelines. Karla brings financial knowledge and expertise to the often complicated untangling of a marriage. Those facing divorce need a great divorce team that is well versed in all aspects of the process, and a CDLP is a big part of the successful outcome of the divorce, as we help to structure the equity buyout of a retained home as well as the qualification of purchasing a new home.

Karla is a fourth generation Coloradan, married mother of four. When she’s not in the office you can usually find her outdoors hiking, attending numerous sporting events for her two teenage boys, taking in a pool day with friends and family, or honoring her daily yoga practice.

Like this article? Check out, “What is a Certified Divorce Lending Professional?”