08 Mar The True Impact Of Divorce On VA Home Loans Every Service Member Needs To Know
Ever wondered what the impact of divorce on VA home loans would be? VA home loans are mortgage programs backed by the US Department of Veterans Affairs (VA) and provided by private lenders. These loans have no downpayment requirements, easy eligibility criteria, no PMI requirements, lower interest rates, and flexible guidelines.
Although VA mortgages are available to Veterans, active military members, and reservists, service members’ spouses can also apply for them. However, in case of a divorce, your eligibility might face some challenges.
So, if you are wondering what would happen to your VA loan application after a divorce, here’s a bit on it. We would also be explaining how to maintain your eligibility after a divorce.
How Divorce Changes Finances?
Dissolving a marriage affects you and your family personally and financially. You would have to consider several things like financial assets. Your financial assets could be joint savings, checking accounts, mutual funds, saving bonds, etc.
It would be best to consider how a retirement plan will be divided between you and your spouse.
Another massive decision you must make while getting a divorce is about your real estate. You can either sell it and split the money between you two or transfer the mortgage to your spouse if you are moving out.
Divorce may also change how you live your life. For example, it would increase your monthly expenses and change how you invest for your retirement. Moreover, you might not afford certain things that you could afford as a couple.
Related Article: What Is VA Homeowners Insurance, and Do You Need It?
Getting a Divorce With a VA Home Loan
If you are getting divorced and have an ongoing VA mortgage, there are several things you must consider. Read on to find out what your options are after a divorce.
Selling the House
If neither of you can afford the mortgage individually, it is best to sell off the property, pay off the existing debt, and split your profits so that you can start new.
While you can get the mortgage refinanced in your ex-spouse’s name, it would be only possible if they can meet the conditions required to refinance a loan.
Perhaps, the easiest way after a divorce is to dissolve the VA loan by selling the property and paying off the debt you owe to the department.
However, before you take a step forward, it is wise to consider the hidden costs of selling a house. These include the realtor’s fee, the cost of simple renovations you must get done to make the house ready for reselling, and taxes like capital gains and real property transfer tax.
Refinancing the Existing Mortgage
If you and your ex-spouse opted for a joint mortgage, you could get the mortgage refinanced in your or your spouse’s name after a divorce.
However, when refinancing the mortgage after a divorce, you must consider the transfer of title. It is possible for your ex-spouse to still benefit from the sale of equity if you accept the mortgage in your name, provided that their name has not been removed from the title.
You must remove your former spouse’s name from the title after refinancing a joint mortgage in your name after a divorce. To do that, you would have to file a quitclaim deed.
Moreover, it is vital to keep your finances in check after a divorce. As the sole owner of the property, you would have to take out mortgage payments independently. While refinancing, you must consider the rate of interest. Try opting for lenders who are willing to refinance your loan at lower interest rates so that your monthly payments can go down. The rates, however, will also depend upon your credit history, outstanding debt, and several market factors.
Remove Spouse’s Name From the Loan
As stated above, the easiest and quickest way to remove your former spouse’s name from the mortgage is by refinancing it and opting for a quitclaim deed.
Through refinancing, you will be able to restore your entitlement and opt for VA home loan benefits again once you have paid the mortgage entirely.
Buy-Out Spouse’s Equity
It might seem easiest to sell off the property and split the equity between you too, but this process can be pretty hectic and not that feasible. Instead, you can go for a professional appraisal.
If you and your former partner can cooperate and decide on a professional appraisal company, determining the actual equity would be the best way.
When you decide to sell, you can split the equity between yourself and your partner to consolidate your debts or purchase your own home.
Related Article: Best VA Loan Lenders for Active Military & Veterans 2021
Divorce and Assuming a VA Home Loan
If you are a service member and want your former civilian partner to take over the mortgage, you can allow them to assume the mortgage.
There are usually two conditions where someone can assume your VA mortgage. First, you find someone who can substitute their VA loan eligibility for your eligibility. Second, you find someone who can meet the financial requirements of the loan.
If you divorce a civilian, you can go for the second option, and they would be required only to meet the financial needs of the loan. Moreover, you must opt for the release of liability while allowing your ex to assume your VA liability to restore your entitlement.
How to Petition for Release From the VA Loan?
As stated above, you would have to ask the VA to provide you with the release of liability in case your former spouse assumes the loan.
Technically, you would have to fill out VA form 26-6381 to file the release of liability. However, it is essential to release to protect your credit history if the person assuming the loan fails to make mortgage payments on time.
Non-Military Spouse Keeping the VA Mortgage
A non-military spouse can only keep a VA mortgage by assuming it from their former service-member spouse. You would gain access to several VA benefits like lower interest rates and flexible guidelines by assuming.
Related Article: The Ultimate Guide To A VA Loan
Refinancing a VA Loan After Divorce
The impact of divorce on VA home loans may motivate you to refinance. Selling the house is often the best solution for dissolving your marriage if you have an ongoing VA loan. However, if you think you can handle the monthly installments on your own, you can.
VA Loan Eligibility
The loan eligibility for a service member would remain the same. You would have to meet the financial and service requirements. However, unlike qualifying for a VA purchase loan, you would not be required to apply for VA COE again. Neither would you be required to go through a VA loan appraisal if you apply for VA IRRRL.
If you have decided on VA home loan refinance, it is wise to contact a lender who can help you through the process. To get started, you will be required to submit your VA Certificate of Eligibility (COE) to the lender. The lender will then provide you with the quotes.
Related Article: VA Loan Limits by County
Separating from someone you thought you would live forever can be equally stressful and challenging, especially if you have an ongoing joint mortgage. While the easiest option is to sell off the property and divide the equity among yourself and your former partner, you can also refinance the loan if you wish to keep the mortgage.