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What happens to a mortgage if I keep my house after divorce?

Choosing what to do with a house in a divorce is only part of the equation. Couples also need to determine how to handle a joint mortgage.

During a divorce, it is common for California residents to focus heavily on how to divide their marital assets. However, what must also be divided during a divorce are debts. For many couples, their home is their largest and most valuable asset. Conversely, their mortgage is their largest and most costly debt. When one spouse wants to keep a family home after a divorce, it is therefore essential that plans are made for the mortgage as well as for the home.

Lenders are clear: mortgages are separate from homes

While a mortgage is intended to pay for a home and a home is used as collateral for obtaining a mortgage, lenders very clearly consider the two separate entities. For this reason, a couple that agrees one spouse will stay in the home and assume responsibility for all mortgage payments may still see a lender pursue both parties for debt repayment.

Even if the divorce decree clearly stipulates the mortgage as one person's responsibility and the title has been transferred to that person's name only, a bank may hold the other spouse accountable for any missed or late payments by the spouse who was supposed to make the payments. In this way, one person's credit could well hinge on the actions of the other for years after a divorce has been completed.

According to Bankrate, this reality is a big reason why many couples end up selling their homes during a divorce. In addition to avoiding future financial issues , selling a home can give people a better emotional fresh start to their post-divorce lives than staying in a home filled with memories from the marriage.

Seeking a new loan may also help

If selling a home is really not something that a person wants to do, refinancing a joint mortgage into a new loan in one name only may be an option. This would eliminate any responsibility for the loan by the other person. However, it is important for people wishing to go this route to ensure that their newly divorced financial status would qualify them for a loan sufficient to keep their home. This can sometimes be a challenge for people who all of a sudden find themselves living on a reduced income.

Help from a professional recommended

California residents are urged to talk to an attorney when a divorce is decided upon. This will give people the access they need to learn about the various decisions to be made and how to protect themselves and their assets, credit and debts.

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