Buying or Selling a Home/One spouse responsible for entire refinancing
QUESTION: Thank you very much for taking my question.
My wife and I are in our early 50s with two daughters at college. Our real estate market has improved greatly and we are sitting at 80% loan to value (loan = $168K). Combined income in the low $200K range. We could really benefit from refinancing.
My credit is in the low 700s, while my wife’s is in the low 600s (extended period of unemployment a couple years ago). Mortgage lenders are urging me to apply for refinancing in my name only.
This seems very risky to me.
To be very honest/realistic, there is a fair chance that my wife and I could be separating in the next few years. I fear that having a situation whereby we both have joint ownership, but I have 100% of the financial commitment could be very troublesome in a divorce settlement.
Should I avoid this route?
ANSWER: Hi Dave.
Thank you for your refinancing in one name question. It's a good one! The answer lies A LOT in your communication and agreement with your wife -- as you know, of course. Please keep in mind I am a Realtor and not an attorney, financial adviser or family counselor. The following is based strictly on my personal experience.
These are my thoughts:
* I agree with the loan agents when it comes to your option of refinancing in your own name.
* I also agree that having just her name on the deed and not the mortgage could leave with debt yet no house to show for it.
This second option, in my opinion, is sometimes taken by the slightly foolish and most likely feeling guilty/overly-responsible party that thinks they somehow owe their spouse a lifetime of commitment post-divorce. Unfortunately, this financial commitment will mean a debt that will follow you when you go to buy your next fill-in-the-blank as it will count against your debt to income ratios.
However, if your wife is already 'gearing-up' for the same outcome as you are she may be willing to negotiate for other off-setting values. Examples:
* You continue to pay the for home until your daughters are out of college and she pays all or a higher percentage of the kids' tuition/supplemental costs.
* You get the rental property and/or boat, art, cars...whatever
* You continue to pay for the home for 'X' amount of years only and then the house is sold. Note: This can be quite troublesome as more questions come up: Who pays for maintenance in the meantime? Who hires and deals with the Realtor? Who pays for home inspection/s? What if you don't agree on price?
-- You get the idea.
Things to keep in mind with any successful negotiation:
* Must be entered with an open agenda and best intentions -- win/win
* Must be in writing, have specific deadlines, and for best results dollar range values that are agreed to upfront.
* BOTH of you need to understand the capital gains implications, if any. This could mean a real timing issue when it comes to how long you are out of the house, when the house sells, and how much gain can be excluded when the house sells. This may not be a concern given the dollar amounts you've referenced, for now. But, what about a few years from now?
If your wife is not aware you are preparing to separate or does not agree with the idea, your moving forward is going to be prohibitive as the unwillingness to drop her from the mortgage is going to be hard to explain.
With all of that said, let me add, if it were -me- I would not take on the debt without having all my ducks aligned. So, until you're fully prepared to go through the details of the possibly impending divorce, and if it is financially feasible, I would skip the refinancing conversation/s.
'Hope that helps, Dave. And, please know I feel for you. Separation is never an easy decision. Once you throw in the financial aspects, well, it gets even tougher. Hang in there...
P.S. You may want to check out my website: HouseInDivorce.com for more information and in-depth review. Good luck!
---------- FOLLOW-UP ----------
QUESTION: Thank you very much for your answer Ms. Hisert. Your answer confirmed my initial feelings and I do not feel comfortable assuming 100% of the debt for a jointly owned home.
Having said that, are all options now closed? My best estimate is that my credit score would be 700+ and hers would be 600. Not ideal, and I realize we would be pay a penalty in higher rate.
You're very welcome, Dave. I won't be able to answer the ins and outs of refinancing as the guidelines and private lenders change frequently. My best advice would be for you to visit a mortgage broker. That person will have multiple lenders to choose from, and therefore an assortment of options, versus your on the corner big bank.