July 15, 2015
We get plenty of reader questions about the practicality or feasibility of putting a home loan in one borrower’s name as part of divorce proceedings. Borrowers who purchased a home together with an FHA loan who later get divorced may or may not be at odds regarding who is to take responsibility for the home, the mortgage, and related financial obligations.
We’re often asked if it’s possible to refinance so that one borrower or the other can take sole possession of the property and the mortgage. But divorce proceedings–and divorce law–often varies from state to state, so it’s impossible to answer such questions in a general way. Community property laws may dictate how such things must be carried out, and not all states have community property laws.
So what can a borrower do?
The best thing to do, especially in circumstances where there is a dispute between a legally married couple as to the disposition of the mortgage, is to hire a lawyer who has expertise in divorce law. The lawyer can advise you as to your rights and responsibilities, plus what may or may not be possible under state law.
Borrowers who have FHA home loans may be wondering if the FHA loan program permits refinances to buy out a spouse or a co-borrower who is obligated on the home loan. Again, state law may or may not dictate what is possible, but in general, FHA loan rules do address this need, stating:
“When the purpose of the new loan is to refinance an existing mortgage in order to buy out an ex-spouses or other coborrowers equity, the specified equity to be paid is
–considered property-related indebtedness, and
–eligible to be included in the new mortgage calculation. The divorce decree, settlement agreement, or other bona fide equity agreement must be provided to document the equity awarded to the ex-spouse or coborrower”
That information is currently found (at the time of this writing) in HUD 4155.1 Chapter Three and specifically references appraisal-required, no-cash out refinance loans. Remember that FHA home loans do not override state law, so you would need to get legal advice to see if state law permits the transaction mentioned above.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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