As you may be aware, one of the most important issues that arises during the divorce process is how to distribute property spouses acquired during their marriage. The Illinois divorce statute on division of property requires marital assets be divided equitably, which means according to the interests of fairness – not an exact 50-50 split. With many types of property, such as bank accounts, retirement benefits, automobiles and similar assets, getting to an equitable division is relatively straightforward.
When it comes to the home you share during your marriage, the issue becomes considerably more complex. Many couples opt to either sell to a third party or have one party buy the other out, but real estate is a unique asset. There’s typically a loan attached, which means you may need to address the possibility of mortgage refinancing post-divorce. It’s smart to rely on a Chicago property division attorney for legal advice and read on for a few factors you need to know.
Understanding Mortgage Versus Title
There are two separate concepts involved with real estate when you borrowed money to purchase it:
- The names on the deed of the home; and,
- The names on the contract for your mortgage.
Even if you have an order stating one party will keep the home, the divorce decree doesn’t automatically change the names on either. It’s relatively easy to remove someone’s name from the deed, but the mortgage is a different story. From the viewpoint of the lender, you’re both still obligated to pay according to the agreement you signed when taking out the loan. In most situations, you’ll need to execute a new mortgage contract for the home with one party’s name – i.e., you must refinance.
Post-Divorce Mortgage Refinancing Basics
It’s simple to understand the concept of refinancing when you realize one party is borrowing under an entirely new arrangement. If it’s you that’s keeping the home, you’ll need to qualify through the same eligibility rules you did the first time around; the difference is you’re the only borrower and you alone are responsible for making timely mortgage payments. In a refinancing, a lender will consider:
- Your credit score, for either a conventional or FHA mortgage refinance;
- The loan-to-value (LTV) ratio, which is the mortgage amount divided by the appraised value of the property; and,
- Debt-to-income ratio, an amount that considers the monthly debt payments you make and your gross monthly income. The point of this ratio is to assure lenders you can make monthly mortgage payments on top of what you’re already paying for other debts.
Discuss Refinancing with a Chicago Divorce and Property Division Lawyer
To learn more about mortgage refinancing post-divorce or at any stage of the process, please contact the Chicago office of Attorney Michael C. Craven. You can set up a confidential consultation by calling (312) 621-5234, or visit us online for additional information about our legal services in the area of Illinois divorce and property division.
