Keeping the home after a divorce or separation

Does signing a quitclaim deed take me off the mortgage?

No. A deed decides who owns the home. The mortgage is a separate promise to repay, and everyone who signed the note stays responsible for it until the loan is paid off, refinanced or the lender formally releases them. The CFPB notes that taking your name off a title doesn't take your name off the loan, and a divorce decree that says your former spouse will pay doesn't bind the lender.

That matters for both of you. The spouse who leaves still has the payment on their credit, which can make it hard to buy their next home, and late payments by either of you show up on both credit reports.

How can a former spouse come off the loan?

• Refinance into a new loan in the name of the spouse who keeps the home. This pays off the old loan and is the most common route.
• Assume the existing loan and ask the servicer for a written release of liability for the spouse who leaves, if the loan allows it.
• Sell the home and split what's left, when neither spouse can carry the payment alone.

Federal law (the Garn-St Germain Act) generally keeps a lender from calling a loan due just because a divorce decree or separation agreement transfers the home to the borrower's spouse, so the loan doesn't have to be paid off the day the deed changes. It still doesn't release the spouse who leaves.

How does a buyout refinance work?

A buyout refinance replaces the joint loan with one in your name and can include money to pay your former spouse their share of the equity, as your agreement spells out. Under Fannie Mae's rules, this kind of buyout can be treated as a limited cash-out refinance, rather than a cash-out refinance, when:

• the home was jointly owned for at least 12 months before the new loan closes,
• all parties sign a written agreement stating the terms of the transfer, and
• the spouse keeping the home qualifies for the new loan on their own and receives none of the proceeds.

Other programs have their own rules, and how much equity you can use depends on the program and the appraisal. Tom can compare the options once he has a draft of your agreement.

Can I keep the existing loan instead?

Sometimes. If the current loan has a rate you want to keep, ask the servicer whether you can assume it and have your former spouse released. The CFPB has found that homeowners generally don't have to refinance to do this if they're willing to take on the loan and can meet the investor's standards for an assumption. Get any release in writing. FHA, VA and USDA loans are often assumable; see assumable mortgages.

Can alimony or child support help me qualify?

It can. Fannie Mae counts alimony, child support or separate maintenance as income when:

• a divorce decree, separation agreement or other written legal agreement sets the payments,
• you can show full, regular and on-time receipt for the most recent six months, and
• the payments will continue for at least three years from your application.

Voluntary payments without a written agreement don't count. If you're the one paying support, the payment counts against your budget instead. Other loan programs have similar rules with their own details.

What steps should I take, and when?

1. Talk with Tom early, before the agreement is final, so you know whether you can qualify alone and roughly what a buyout could look like.
2. Work out the house in the agreement with your attorney: who keeps it, the buyout figure, and a deadline to refinance or sell.
3. Keep every joint payment on time until the old loan is paid off.
4. Once the agreement is signed, apply, appraise and close the refinance, or ask the servicer about an assumption.
5. Record the new deed and confirm in writing that the old loan is paid off or that a release was granted.

Tom doesn't give legal or tax advice. Your attorney handles the agreement, and a tax professional can explain how a transfer between spouses is taxed.