“It is dangerous to assume because you might make an ‘ass’ out of ‘u’ and ‘me.’” — Not Oscar Wilde. Not The Odd Couple. Just an auto insurance ad from 1957. But mortgage assumption during a Virginia divorce is a money saver and is different from a buyout.

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Home Finance Basics

Remember your elementary school teachers? They taught at the pace of the slowest kid in class to make sure nobody fell behind. (Hey, we know that wasn’t you!)

That was nice of those teachers, wasn’t it?

We like to be nice around here, too. These articles are like your old teachers. We do not assume you each have a Wall Street sophistication about finance, so we go over some fundamentals (and if you actually are a Wall Street type, please be patient as we go over basics.)

  • Mortgage As described by the Consumer Financial Protection Bureau, a mortgage is a contractual agreement you make with a lender (a source of enough money to buy the house you want); if you fail to repay the lender, the lender takes your house.
  • Assumable mortgageAccording to Investopedia, this is “a type of home financing arrangement where an outstanding mortgage and its terms are transferred from the current owner to the buyer; by assuming the previous owner’s remaining debt, the buyer can avoid obtaining their own mortgage”.
  • Mortgage buyoutDivorceNet describes a mortgage buyout as an option under which,
    “in exchange for something of value, one spouse retains the house and the other is removed from the title and mortgage”.
  • Equity — Your marital home’s equity, says FreddieMac, is “the difference between how much your home is worth and how much you owe on your mortgage”.

The mortgage you and your spouse hold on your Virginia property is (or should be) in both your names. The title should have both your names (and the mortgage company) on it. The deed may have been transferred to you (the buyers) from the sellers with the new deed showing both your names. Those three documents — title, deed, and mortgage contract — mean you and your spouse have the same legal rights to the Virginia property.

Mortgage Assumption

Assuming your spouse’s portion of the mortgage on your marital home is not only entirely legal, it makes a lot of sense in many cases.

Assuming a mortgage can streamline the process of property settlement. Rather than finding a real estate agent, getting the home appraised, listing it and scheduling showings, the divorcing couple can agree that one spouse takes full responsibility for the current mortgage.

The terms of the mortgage (length, interest rate, principal balance), the amount of equity in your marital home, and the lender remain the same. Instead of you and your spouse cobbling together a monthly payment, only one of you coughs up the cash.

Advantages of assuming a mortgage

  • The interest rate is already locked in; today’s rates may be much higher than your original mortgage.
  • You need not look around for a new lender.
  • You face no application fees, appraisal costs, or title insurance charges.
  • No inspection or fresh appraisal is needed.
  • When one spouse assumes the mortgage, the other spouse can be removed from the mortgage and title relatively quickly; in a buyout, both spouses could remain on the title and mortgage for years (legally retaining rights to the property).

Cautions about assuming a mortgage

  • Not all mortgages are written as assumable mortgages; read your documents carefully.
  • The original lender will want to see the same documentation necessary for the original loan, but this time it will only be from one of you (income source, assets); if you and your spouse barely qualified originally and your own financial position has not improved greatly, the lender may turn you down.
  • Loan assumption can take months to complete.

Mortgage Buyout

A buyout can be a bit more complicated to navigate than a mortgage assumption. If you and your spouse enjoy bargaining, bartering, and horse trading, a mortgage buyout could be a pleasant experience:

  • The one buying out the other spouse pokes around for other marital assets to trade, such as a retirement account, investments, valuable artwork or jewelry, family RVs or boats, and similar high-ticket items.
  • The property settlement agreement stipulates that one spouse gives up claim to X, Y, and Z in return for the other spouse’s equitable portion of the mortgage.
  • No actual cash need change hands
  • In the case of a buyout over time, the spouse buying out the other could make regular payments to the other spouse while both names remain on the mortgage and title.

Some cautionary notes on this strategy, too:

  • While the title could transfer to the spouse doing the buying out, the mortgage company will usually not remove the name of the other spouse without refinancing the mortgage.
  • Since some buyouts take years, both spouses remain legally responsible for the property and the mortgage during the buyout period.
  • If you cannot trade enough marital assets to offset the cost of the buyout, you may have to refinance the mortgage in your name only.
  • Agreeing on the value of the buyout will likely involve paying for an inspection, appraisal, and calculation of both spouse’s equity in the marital property (remembering that Virginia is an equitable distribution state, so your spouse’s contributions may not be exactly 50 percent of the property’s value).

Assuming you have already established a good working relationship with a Virginia divorce attorney, you may want to consult a real estate agent or financial advisor about the better path forward: mortgage assumption or buyout.

Then work with your attorney to have the terms written into the property settlement agreement. A marital home is too large an asset to squander through hasty decisions or bad strategy.

The Firm for Men, headquartered in Virginia Beach, stands ready to answer all your questions about family law. We specialize in working with Virginia’s men to preserve their rights, peace of mind, and financial security. Contact us today or telephone our offices at (757) 383-9184.