From Divorce to Financial Freedom: Exploring Mortgage Solutions for Property Buyouts
By Zach Taylor, Senior Mortgage Advisor with Cross Country Mortgage (CCM)
Divorce can bring a host of complex financial challenges, particularly when it comes to managing mortgage obligations and property buyouts. Understanding your options for financing a home, whether through a loan assumption, refinancing, or other creative solutions, is essential to navigating this part of the divorce process. Mortgage Advisors specializing in divorce situations can guide you through these decisions with a range of mortgage solutions designed to fit your specific situation. Whether you’re dealing with unique circumstances like high debt ratios or need assistance with a divorce buyout, they can offer insight into the best paths forward.
Q&A:
Q: What if a loan assumption is possible, or the exiting spouse agrees to stay on the existing mortgage, but the other spouse needs to finance some or all of the buyout?
A: We offer Home Equity Lines of Credit (HELOCs) and fixed-rate 2nd mortgages from over 20 sources. A signed Marital Settlement Agreement (MSA) may not be required if all parties agree. Many people assume keeping their current mortgage rate is the best option. However, if the buyout amount is large (which is often the case with today’s high equity), the combined payment and blended rate of the existing mortgage plus a new second mortgage or HELOC may be higher than refinancing. Refinancing, on the other hand, not only locks in a potentially better rate but also removes the existing spouse from both the mortgage and the title, allowing for a clean break.
Q: When can someone apply for an assumption?
A: You can apply for a loan assumption once the divorce is final and you can take title as “unmarried, sole, and separate.” Keep in mind that some lenders may take 2-4 months from this point, so it’s important to plan accordingly with the MSA. Qualifying is similar to any other loan application, and a mortgage advisor can help assess whether you are eligible. Note that cosigners are not typically allowed in this process.
Q: What if there is no support, or seasoning and continuance is not enough, and the debt ratio (total debt/total gross income) is too high? What if the borrower has not worked in some time or has a series of part-time jobs as they work to get income established post-divorce?
A: If the borrower is struggling with debt ratio or inconsistent income, we can use a cosigner as a “non-occupant co-borrower.” Once the primary borrower has secured stable employment or meets the seasoning requirements, we can revisit the loan terms, and potentially remove the cosigner through refinancing.
For investment properties, we offer a program I call “Zach’s Rent and Appraisal Only Plan.” This program doesn’t require tax returns, job verification, or debt ratio calculation. If the rent (either from a current rental agreement or appraised market rent, whichever is less) covers the mortgage payment (including taxes/insurance/HOA fees), we can still move forward with the loan. Even if the rent is slightly lower than the payment, we can still proceed, but at a higher rate. Generally, rates for this plan are about 1% higher than standard, and a 30-year fixed option is available.
For owner-occupied homes for those aged 55+, we often explore reverse mortgage solutions. I recommend an initial consultation to see if this is a good fit, after which my expert reverse mortgage team can offer a full, transparent analysis of the available options.
For owner-occupied properties, we offer a program that doesn’t require job or income verification, and no debt-to-income ratio is calculated. The rate and points are determined based on your credit score and the loan-to-value ratio. The lower your credit score and the higher the loan-to-value, the higher the rate will be. There are also reserve requirements. A signed MSA is not necessary for this program. Please allow 40-45 days for closing. Rates are typically about 2% above standard rates, and 30-year fixed options are available.
Q: What if the marital settlement agreement is not available before closing?
A: While it’s not ideal, there are scenarios where all parties agree to proceed without the MSA being finalized. In community property states like California, the non-occupying spouse must sign a spousal transfer deed to clear the title as “married sole and separate.” This is necessary until the MSA is finalized and the divorce is officially complete. Once the divorce is final, a new deed can be filed to reflect the “unmarried” title.
Q: What is going on with mortgage rates?
A: Since September, the 10-year bond yield has risen from around 3.79% to 4.65% as of January 2025, despite short-term interest rate cuts by the Federal Reserve. Mortgage rates are closely tied to these bond yields, which have increased due to stronger employment, consumer spending, and higher inflation. While earlier forecasts predicted lower rates in 2025, those projections are less optimistic now. It’s essential to avoid promises like “close now, refinance later,” and instead focus on securing a rate that truly fits your post-divorce budget. Permanent rate buydowns are always included in my offerings. If it is a purchase, we can ask the seller to credit the buyer for this cost. Even if the offer price increases to get the seller the same proceeds, the monthly savings can be substantial. In buyout cases, the exiting spouse may accept a smaller payout, and that money can be used to help buy down the remaining spouse’s mortgage rate.
Q: What about clients who need a Jumbo loan? (over $806,500 in San Diego County)
A: We offer our own CCM Signature Jumbo loan with rates up to 0.5% lower than a conforming loan. This loan allows for a debt-to-income ratio of up to 50% (most lenders cat at 43%) with no additional rate increase. It also requires only 10% down and doesn’t charge PMI. The flexible guidelines allow for a one-year average income for self-employed borrowers, and we can do a divorce buyout with no cash-out rate add-ons, even if the loan exceeds 80% of the property’s value.
Conclusion:
Navigating the financial side of a divorce can feel overwhelming, but with the right mortgage solutions and expert guidance, you can ensure a smooth transition. From loan assumptions to creative financing options, there are a variety of ways to approach the division of property and homeownership. As your trusted advisor, a Mortgage Lender can provide clarity and help you make informed decisions that align with your post-divorce goals.
Zachary Taylor is a mortgage lender with 30 years of experience, specializing in helping clients navigate the complexities of divorce-related property issues. Over 25% of his business involves individuals in some phase of divorce. With access to mortgage programs from CrossCountry Mortgage and a network of other lenders, he ensures clients get the best rates and a solution that fits their needs. Zach helps clients determine if a buyout or sale is the best option, offering support to prevent unexpected issues during the divorce process. With a 98% close ratio and over 2,000 transactions, Zach’s extensive background includes underwriting, loan approval, and 16 years as Managing Broker and Partner in a local mortgage company. He is also a licensed California Real Estate Broker and holds a B.A. in Economics from U.C. San Diego. Zach can assist people all over the country as CCM is licensed in all 50 states.
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Email: zach@zachtaylormortgages.com
Tel: 619.813.7908
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For more information on Vesta, please explore our website www.VestaDivorce.com, or call our Concierge service for support: 877-355-7649.