Options for Refinancing the Marital Home
Divorce often forces big decisions about the marital home—especially when one spouse wants to keep it. Refinancing becomes the key to a clean financial separation, but it’s not always straightforward. In this comprehensive guide, we’ll walk through the refinancing options available during divorce, the qualifications involved, Arizona-specific considerations, and what to watch out for to protect both parties.
Why Refinancing Is Critical in Divorce
When a couple divorces and one spouse keeps the home, the most common solution is refinancing the mortgage into that spouse’s name alone. This removes the other spouse from the loan and releases them from future liability.
Without refinancing:
The departing spouse remains legally liable for the loan—even if they no longer live there.
Missed payments could impact both credit scores.
The spouse keeping the home may face legal issues with the divorce agreement or title transfer.
If you’re getting divorced in Arizona and plan to keep the home, refinancing is usually the best way to protect your credit, equity, and future mortgage eligibility.
The Steps to Refinancing After Divorce
1. Determine Who Will Keep the Home
This must be agreed upon in the divorce settlement or court order. Arizona is a community property state, so equity and title ownership must be divided appropriately.
2. Assess Current Mortgage Terms
Review your loan balance, interest rate, payment history, and whether the loan is assumable. If not assumable, a full refinance will be required.
3. Evaluate Refinance Options
There are typically two types of refinances post-divorce:
Rate-and-Term Refinance: You keep the same loan amount but possibly improve the rate or term.
Cash-Out Refinance: You refinance for a higher amount to buy out the other spouse’s equity share.
4. Qualify for a New Mortgage
The spouse refinancing must qualify based on their income, assets, debt-to-income ratio, and credit score. This can be a challenge for non-working or lower-earning spouses.
Challenges to Refinancing During Divorce
Income Stability: Many recently divorced individuals have less predictable income, especially if self-employed or returning to the workforce.
Debt-to-Income Ratio (DTI): Existing obligations, including temporary spousal support or child support, could impact approval.
Credit Issues: If divorce has caused missed payments or increased debt, credit scores may suffer.
Tip: Work with a Certified Divorce Lending Professional (CDLP) who understands how to calculate qualifying income for divorcing clients.
Arizona-Specific Considerations
In Arizona, community property laws affect how equity is divided—but not how loans are structured.
Divorce decrees may include specific deadlines for refinancing (usually within 60 to 90 days).
If the spouse keeping the home doesn’t refinance by the deadline, the court may order the home to be sold.
Arizona lenders require quitclaim or warranty deeds to formalize ownership transfer.
Real-Life Example from Phoenix
A divorcing couple owned a home in North Scottsdale. The wife wanted to keep the home but didn’t have sufficient W-2 income. With a CDLP and creative structuring, her spousal support was counted as qualifying income. She used a cash-out refinance to buy out her husband’s equity. The loan closed on day 87 of the court-ordered 90-day window, protecting both parties’ credit.
Alternatives to Refinancing
If refinancing isn’t possible, consider:
Loan Assumption: Rare, but available on some FHA or VA loans with lender approval.
Temporary Joint Ownership: One spouse stays in the home while both remain on the mortgage, usually for a set period. This should be documented in the divorce agreement.
Sell the Home: If neither party can qualify or afford to refinance, selling may be the best financial decision.
Tax and Legal Considerations
Capital Gains: If the home is sold later, only the occupying spouse may qualify for the $250,000 exclusion.
Mortgage Interest Deduction: Only the person legally liable and paying the mortgage can claim this.
Deed vs. Loan: Removing someone from title (deed) does not remove them from the mortgage.
Always consult with a CPA or tax attorney when structuring property settlements involving the marital home.
Tips to Make the Refinance Process Smoother
Start early: Don’t wait until after the divorce is final to begin the refinance application.
Document spousal or child support: Lenders require proof that support will continue for at least 3 years.
Monitor credit: Use a monitoring service and resolve delinquencies before applying.
Avoid new debt: Don’t take on car loans or new credit cards before refinancing.
Use experienced professionals: A CDLP and Certified Divorce Real Estate Expert (CDRE) can coordinate efforts and avoid pitfalls.
Final Thoughts: You Have Options
If you want to keep the marital home after divorce, refinancing is one of the cleanest ways to separate financially from your ex. But it requires planning, preparation, and a team that understands the nuances of divorce lending in Arizona.
📞 Call, text, or email me today. I’ll help you understand your refinancing options, refer you to trusted lenders, and guide you through the process so you can confidently move into your next chapter—on your own terms.
Let’s get you home—financially and emotionally.