Mortgage guidelines for divorcing couples

Not only are you forced to endure the emotional pain and suffering through separation and marriage dissolution, but the finances need to be dealt with as well. Divorce and mortgage go together like fire and tungsten (the metal with the highest melting point, used for incandescent light bulbs, but is malleable and can be cut). Navigating the guidelines, while either preserving your current home or acquiring a new one, are not for a novice lender or online mortgage call center. You need a specialist, one who knows the applicable guidelines and can help break them down, shed light and help you work through them to finally cut the tie (see what we did there?).

Married, Unmarried or SeparatedGavel

First, it is important to know the milestones and how they apply. When you are applying for a mortgage, your marriage status has to fit into one of three choices: married, unmarried or separated. The separated status indicates that you have a legal separation filed. This status requires that you have served and filed a petition in the District Court in the county where you or your spouse lives. From

QUESTION: Since it costs as much, takes as long, and involves the same major issues, why would anyone want a legal separation?

ANSWER: Some couples choose legal separation because of religious beliefs or moral values against divorce. In a few cases, there may be insurance or other financial reasons for a legal separation.

A legal separation includes details about alimony/child support, custody, who is ordered to pay what (mortgage or other debt), separation of assets and liabilities, and just about anything else you can imagine to put in there (who gets the dog, business interests, other real estate, etc). Because of the cost and process, it is rare to have a legal separation filed and more likely that a divorce filing is entered instead. We should note right now that we are not attorneys and are not licensed to, nor want to give legal advice. Consult with a reputable family law attorney on what the best approach is for your scenario. A great resource to help you decide what is the best course of action:

Attorney at Hellmuth and Johnson

As for married or unmarried it depends upon what is recognized by the state. If your marriage was cultural and not legal, your application status is “unmarried” regardless. If you were legally married, your application status remains “married” until the divorce decree is finalized in court. Once the decree is finalized, the specific details contained within it have ramifications for access to mortgage credit.

The single best piece of advice we can give you is to have us review your draft divorce decree BEFORE it is finalized

What we see most often is a completed and filed decree that has requirements in it that cannot be met. Some examples include a requirement for one party to complete a refinance of an existing mortgage, yet they don’t qualify to do so, or to sell a property within a short period of time and having no where else to live, or to secure housing for dependents and an inability to acquire it. The specifics regarding finances take careful planning. Before we forget to mention it – take care of your credit profile as well. We see all kinds of train wrecks – from excessive spending to “punishment non-payments”, meaning one party stops paying the bills to punish the other. Try to not do these things as joint credit will stay on your credit report even after the divorce is complete.

The Mortgage

A mortgage is a lien on real property, secured by a promissory note. That promissory note contains a “promise to repay” and whoever signs it is a borrower. Divorce does not release liability on that note, but a court order (divorce decree) can assign the responsibility to one party. The court order does not remove the liability from credit bureaus or credit reporting, so if it doesn’t get paid the late payments will negatively affect any borrower(s)’ credit. So, what if a court order assigns the responsibility to the other party – how does a divorce work to buy another home? Getting a mortgage during divorce adds a few things to navigate, but we can help you find your way.

A court order (divorce decree) that the other party pays the mortgage means it is no longer counted in your debt ratio for qualifying on a new mortgage. Essentially, when underwriting your loan application we disregard the mortgage payment if the final decree orders the other party to pay it. However, your qualifying credit score will reflect the payment history on that mortgage note. Most loan programs utilize an automated underwriting system that will read mortgage histories from the credit report and make an automated decision about your approval. A mortgage payment that is two months past due in the last year will almost certainly negatively affect the approval of a new application.

Best course of action? Get a draft of your decree to us before it is finalized and we can review it in combination with your application and do a “hypothetical” preapproval. That will be contingent on the finalization of that decree.

Title To the Property


Ending a marriage has challenges related to property and mortgage

If we were you, we would not quit claim deed off title until the mortgage is satisfied or the decree is filed and it was required in the decree. The court order could also specify who gets what equity, timetable on sale of the property, etc. In Minnesota, as long as a property owner is married and it is principal residence, both spouses need to sign to convey (sell, transfer title) property. Once the decree is completed and one party has signed a quit claim deed, the property can be conveyed by one party. So, if you want to maintain control over transferring the title to the property, don’t quit claim away your interest until after the judgment and decree is entered or an attorney advises you differently. Sometimes a quit claim deed with a lien interest is appropriate. Again, discuss with your attorney prior to filing a deed to real property. Also to note, signing a quit claim deed prior to the decree being completed doesn’t remove a spouse’s interest in a homesteaded property. MN Statute 507.02

Refinancing a Mortgage In Divorce

If you are the party retaining the property and will take on sole ownership and responsibility, the decree will likely require you to refinance the loan. Many challenges are presented by this requirement. One is the interest rate on the existing loan may be much lower than the current market rate. The only way to keep this interest rate is if the loan is assumable (if the loan can be assumed by you from the both of you, typically only FHA, VA and USDA loans) or to keep the loan in place. Another challenge is you likely qualified jointly for the existing mortgage if both parties are on the note and now you will need to qualify solely. A third challenge is all of your joint debts will now be counted in your debt ratio being analyzed for the new loan. In addition, the payment history of all those debts will also be factored in.

Getting a mortgage during divorce adds an extra complexity, but we are here to help and have extensive knowledge to guide you. We recommend that you resolve as much of the other debt prior to taking on the refinance application, if needed, to help you qualify or qualify for better terms. We will do an initial review for you and advise of what action is needed. You can get started with the refinance request here and indicate “remove coborrower” in the request:

Refinancing Made Easy

Our final word: don’t wait until your divorce is finalized to seek information on refinances and mortgages. Doing so early can make all of this easier, less costly, and maybe even save you time in court.

Selling your home is a major step in life.  The reasons for selling are as varied as real estate itself.  The reason(s) for selling generally outweighs the cost, but how does one evaluate all the costs?  We immediately think of the tax consequences, the Realtor fees and the price for a new home, but let’s not leave out the details.  This article will explore many other financial considerations when selling your home.  It might be a good idea to make a list of any of these items that might apply to you:

Tax Benefits/Consequences

What tax benefits?  Consider the current amount of interest, property tax and any mortgage insurance currently being paid.  These are all tax deductible items now.  If your new home carries a higher amount of any of these, that will add to your schedule A itemized deductions (new mortgage may be $100 more, but take away $x of that for the increased tax deduction).  Your new home may be currently lacking utilities and/or appliances, or in need of replacement (thinking of you, fixer uppers).  New appliances and utilities can have energy tax credits that you can deduct on your federal income taxes.  Think about tax assessments – do you live on an old street that may be coming up for replacement?  Is your association starting to talk about a new roof on the building?

Capital Gains Tax

Always be concerned with capital gains, but know when it applies.  This is where a good CPA comes in handy.  Often capital gains tax doesn’t apply when selling your personal residence, but not so fast with investment property or inherited property.  Schedule a time with your tax professional before listing your home.


Newer homes are generally more energy efficient due to technology in construction and appliances.  In Minnesota, we think of utility costs in regards to electricity in the summer and heating fuel in the winter.  Consider the age of your appliances, your current energy bills and how a potential buyer might look at those in evaluating their home options.


Going from a townhome to a 1/2 acre estate?  Consider what your current maintenance expenses are compared to what they will be.  Some people sell their home to not have maintenance anymore.  Aside from the work, maintaining certain systems can be expensive.  If your home has a pool, wood siding, aging appliances, or other features that have upcoming maintenance a buyer will notice (or their inspector will).

Property Taxes

We touched on this earlier, but more than assessments or income tax implications, property taxes can vary greatly from property to property and city to city.  Look at the property tax amount on your home compared to other homes around you for sale.  How does it compare?  How do the taxes on your home compare to the taxes on new prospective homes?

Home Insurance

Premiums are based on a variety of factors, some concern your personal credit and other policies bundled in, but many factors regard the features of the property.  A new roof, proximity to fire stations, having a sump pump and generally new construction will have lower premiums.  Wood fireplaces, pools, older homes, aluminum siding, outdated electrical systems, visibility from the road, no garage,  and other factors can drive premiums higher.  Talk with your insurance agent about how your premiums might change from the old to the new.

Stress and Finances

Selling a home is stressful, of course, but did you think about how that translates into your finances?  Stress can lead to “comfort spending” – that extra mocha or dinner out, spa visits, yoga class or a getaway just to help you cope with this process should go into the transaction expense.

Moving Expenses

Add in the truck, boxes, blankets, Paul and Roger (the two moving guys), fuel, tape, set up fees, take down fees, and did we consider the piano?

Current Interest Rate Environment

The market has changed since your bought your home, or completed your last mortgage.  Consider the differences in the market compared to what terms are on our current financing.  You might have to let go of that 30 year fixed at 3.25% you have and accept the current interest rate for what it is.

Selling Expenses

This is where we discuss Realtor costs, mortgage payoff, and title costs.  We won’t get into the different commission structures or fees, but rather to just consider the expense.  Your professional Realtor can cover all of these with you by reviewing a “net sheet,” which illustrates a breakdown of how your sales price translates to your bottom line net proceeds.  The Realtor expenses (includes commission and broker admin fee), deed tax, title closing, recording fees, mortgage payoff (includes interest through payoff date), and prorated property taxes are all subtracted from the sale price.  Also subtract any seller paid closing costs for the buyer, but this isn’t actually an expense.  It should be deducted from the sale price and the net of the two considered the actual sales amount.  The buyer is essentially “financing in” their costs to obtain a loan.  As a seller, look at the net sale price after seller concessions.

Buying Expenses

When buying a home the closing costs for title, mortgage loan, appraisal, inspection, recording of the deed and mortgage, and broker admin fees all apply.

Home Search Expenses

I know your first thought – “We can find our home online, right from our living room.”  We don’t buy houses this way, or at least most of us don’t.  Unless your Realtor is driving you from point A to B, add in the fuel and wear and tear on your vehicle.  Also keep in mind your time spent and the possibility of having an inspection completed on a new potential home only to find a serious issue and having to start over.

Opportunity Cost

Ever heard the story of the poor sap who sold his farm that laid upon an oil field, only to be discovered by the next owner?  If you live in an up and coming area, consider the cost of selling your home now just before the neighborhood booms!

Did we miss something?  Send an email to and we’ll add (or “price”) it in.  Thanks for reading!


We have had many clients lately that have needed or wanted to sell their current home and buy another, so we wrote up some tips about buying and selling your home in a seller’s market.

Selling Your Home in a Seller’s MarketSelling your home in a seller's market

The sell side is generally the easier part (though it may not seem that way as you are painting and boxing up all your belongings getting the house ready for market). The market is currently a very strong seller’s market, which means offers contingent on the sale of another property are not as strong.

Buying a Home in a Seller’s Market

We work with our clients to devise a plan for getting approved for the next purchase without having to sell their current home, or strategies for interim financing to utilize your current equity towards the purchase of a new home. In addition to this, with all the constraints this process has, we as your lender will be flexible to meet timeline demands, concurrent closings and can assist in getting contingent offers accepted.

Planning early is never too early and we can help devise a specific strategy for you to make the transition.

As a mostly-inclusive, online real estate search engine, Zillow offers users more information than most real estate web searches. Not only does it incorporate the active listings on the MLS, but also simultaneously shows pre-inventory data.

This pre-inventory is information on mortgages that are in default, or have been to foreclosure auction, and may be becoming available for sale soon. It also has a function for homeowners to list their home for sale without enlisting the services of a Realtor and gaining an audience by doing so.

Users can request information on a home directly from the listing agent in many cases and see a good amount of information on that home, the neighborhood, the other recent sales nearby, the schools, parks, amenities, transportation and property taxes.

One lesson I learned in my elementary education was to always consider the source when reviewing information. It is important to know where the information is coming from, who puts it there, and if it is accurate.

Over the years I have noticed accuracy issues with some of the data, the Zillow Zestimate tool, and foreclosure actions specifically. The last few months I have been searching for another investment property opportunity in my neighborhood, and in comparing Zillow foreclosure data with Hennepin County Sheriff’s Department data I have noticed discrepancies.

My advice – start a search with Zillow to get information, but rely on a licensed Realtor when buying or selling a home. I’m excited to see this tool grow, and the monitoring they have in place on their real estate forums is great, and the service they provide in connecting home buyers with professionals is unparalleled in our industry.

Go to Zillow’s Bloomington Page

See our reviews on Zillow here

Steve Furlong on Zillow