Divorce and Your Mortgage: What You Need to Know Before You Refinance

Editor's note: The mortgage lending guidance in this post reflects the expertise of a Certified Divorce Lending Specialist and covers principles that hold true regardless of market conditions. Specific figures such as interest rates and home values shift over time. Always confirm current qualification standards directly with a lender before making decisions.

One of the most common financial issues I work through with clients is what happens to the mortgage when one spouse wants to keep the house. It sounds straightforward enough: refinance the loan into one name, buy out the other spouse's equity, and move on. In practice, it is rarely that simple.

Over more than 20 years of working with divorcing clients as a Certified Divorce Financial Analyst, I have seen people agree to keep the house and then discover they cannot qualify for a refinance on their own. I have seen settlement agreements that gave someone 30 days to refinance, which is almost never enough time. I have seen people unknowingly tank their credit score right in the middle of the process by doing things that seemed completely unrelated to their mortgage.

This is why I am intentional about building a network of specialists who understand the divorce context, not just the lending process. I sat down with Amy Terrell, a Senior Loan Officer and Certified Divorce Lending Professional with US Lending Corp, to get her perspective on what divorcing clients most need to understand about their mortgage. Her answers cover things I wish more of my clients knew before they signed their settlement agreements.

The Biggest Credit Mistakes People Make During Divorce

Leah: What are some of the biggest mistakes people make when it comes to their credit score when they are trying to refinance?

Amy: Some of the biggest mistakes I see are:

• Opening new accounts. This alone can take you from approved to not approved.
• Shopping for or purchasing a car. Even just visiting a dealership and letting them run your credit can lower your score anywhere from 25 to 100 points, depending on how many inquiries are made.
• Being late on any payments. This one seems obvious, but it happens more than people expect during the stress of divorce. Pay everything on time, including the joint mortgage, even if you and your spouse are not on good terms. If both names are on the loan, a missed payment hurts both credit scores. No one wins that game.
• Having anyone run your credit unnecessarily. Every inquiry has the potential to lower your score. Protect it.

Leah's note: I want to underscore the point about the joint mortgage. I have seen clients stop paying out of anger or frustration, thinking it only affects their spouse. It does not. If your name is on that loan, your credit takes the hit too. Protect yourself.

When Should You Contact a Lender?

Leah: At what point in the divorce process should someone contact a mortgage lender?

Amy: As early as possible. The sooner I can look at what I am working with, the better. If there is a credit issue, we have time to address it before the refinance needs to happen. If there is a timeline in the settlement agreement, the earlier we start, the more likely we are to close on time.

Leah's note: This is one of the things I recommend to every client who is considering keeping the house. Do not agree to anything in your settlement around the home until you have actually spoken to a lender. Settlement agreements can include refinancing deadlines as short as 30 days. If you have not confirmed that you can qualify and close in that window, you are setting yourself up for a serious problem. Talk to a lender first, then negotiate.

Can You Qualify for a Home Loan on Spousal Support Alone?

Leah: Can someone be approved for a home loan if their only income is spousal support?

Amy: Yes, it is possible. There are a few requirements. The borrower needs to have six months of documented spousal support payments. Once that documentation exists, they can apply. The support also needs to be court-ordered and must be set to continue for a minimum of three additional years beyond that initial six-month period.

Leah's note: This comes up constantly, especially with clients who were not working during the marriage. The good news is that spousal support can count as qualifying income. The timing matters, though. If you are early in your divorce and have not yet received six months of payments, you may need to plan for a gap before you can refinance. Factor that into your settlement timeline.

What Else Should People Know?

Leah: Is there anything else you wish divorcing clients and their attorneys understood before applying for a home loan?

Amy: A few things I wish more people knew:

• Pay your bills on time, especially the mortgage. Do not let conflict with your spouse become a reason to miss payments. Both of your credit scores are on the line.
• Do not open new credit cards during the process. Your loan will close in 21 to 30 days. There is time for new accounts after closing.
• If you are purchasing a new home, have your down payment seasoned. This means the funds need to have been sitting in a bank account for at least 60 days. Underwriters will not accept what is sometimes called "mattress money," meaning cash that suddenly appears in an account. If you have cash and plan to use it for a down payment, deposit it now and let it season.

A Note on Working With a Divorce Lending Specialist

Not every loan officer understands the specific dynamics of divorce lending. The income documentation requirements, the timing constraints in settlement agreements, the credit sensitivities unique to this period, all of it requires someone who has worked in this context before.

If you are facing a refinance as part of your divorce, I strongly encourage you to seek out a lender with experience in divorce lending specifically, not just a general mortgage professional. The distinction matters more than most people realize until something goes wrong.

Related Reading

• How to Keep Your House in a Divorce
• How to Refinance Your Home as Part of Your Divorce Financial Settlement
• Who Gets the House in a Divorce?
• 7 Steps to Determine if You Should Keep the House in Your Divorce
• Debt and Divorce

Frequently Asked Questions

Can I refinance my mortgage during a divorce? Yes, but you need to qualify on your own. That means your income, credit score, and debt-to-income ratio all need to meet the lender's requirements without your spouse's financials in the picture. Talk to a lender before you agree to any refinancing terms in your settlement.

How long does it take to refinance a mortgage during a divorce? Typically 30 to 60 days from application to closing, though it can vary. Settlement agreements sometimes include refinancing deadlines that are unrealistically short. Do not agree to a timeline you have not confirmed is achievable with an actual lender.

Does spousal support count as income for a mortgage? Yes, under certain conditions. You generally need six months of documented payments and the support must be court-ordered to continue for at least three more years. Speak with a divorce lending specialist to understand exactly what documentation your lender will require.

What happens if I cannot refinance the mortgage within the settlement deadline? This depends on what your settlement agreement says, and the consequences can be significant, ranging from being required to sell the home to financial penalties. This is exactly why you need to speak with a lender before you sign anything. Know what is realistic before you commit.

Should I use a regular mortgage lender or a divorce lending specialist? A Certified Divorce Lending Professional understands the specific documentation requirements, timing issues, and income complexities that come with divorce. A general mortgage lender may not. Given what is at stake, working with someone who has specific divorce lending experience is worth it.