What if I Can't Refinance After Divorce? (February 2025)

When Do You Need to Refinance After Divorce?

When a marriage ends, the spouses (or the court) must determine who gets what. Usually, they do this with the help of a property division lawyer. If the spouses own a home together, they usually will do one of the following:

• Sell the home and split the profits
• Have one spouse buy out the other’s equity and assume the mortgage

If one spouse gets the home, they must remove the other spouse’s name from the mortgage. If they don’t, the other spouse may be liable for missed mortgage payments. Often, the easiest way to remove one spouse from the mortgage is to have the other spouse refinance the home in their name.

Why Your Refinancing Application May Be Denied

When you and your spouse were approved for a mortgage, the mortgage lender took both of your incomes into account. However, when you refinance the home in your name, the lender is looking at your income alone. The lender also takes the following factors into account:

• Your credit score
• Your debt-to-income (DTI) ratio
• Your assets

Getting approved on a single income is generally more difficult. If you have any debt at all, switching from a dual income to a single income increases your debt-to-income ratio. In itself, divorce doesn’t lower your credit score, but it’s not uncommon for people to struggle with credit issues after divorce.

Generally speaking, you need to meet the following criteria to refinance your mortgage:

• Your credit score should be at least 620
• Your debt-to-income ratio should be 43% or less
• You should have enough steady income to afford mortgage payments

When you apply to refinance your mortgage after divorce, the lender takes a close look at the numbers to determine whether you’re likely to be able to repay the mortgage on your own. If the lender believes there’s a risk of you being unable to do so, they may deny your application.

What Happens if I Can't Refinance After Divorce?

If your application for refinancing has been denied, don’t give up on keeping your home just yet. You might consider these potential alternatives:

Release of Liability

In some cases, you may be able to obtain a release of liability to remove your spouse from the mortgage. This is a document where your mortgage lender officially releases your spouse from all liability for the mortgage.

If you obtain a release of liability, you likely will also need to ask your spouse to sign a quitclaim deed. In a quitclaim deed, your spouse gives up any interest they have in the property.

These two documents are similar, but to ensure you have exclusive rights to the house, you need both:

• A release of liability to ensure your spouse won’t be liable for missed mortgage payments
• A quitclaim deed to ensure your spouse can’t claim ownership rights to the house in the future

It’s important to note that a release of liability is not a surefire way to avoid refinancing the home. Some lenders require you to refinance before they will release your spouse from the mortgage.

Others may not require you to refinance, but they may need you to prove you can reliably cover mortgage payments on your own. If you are unable to refinance, you might run into the same problem when you try to obtain a release of liability.

Including a Customized Agreement in Your Divorce Settlement

If you can’t get approved for refinancing, and your lender isn’t letting you release your spouse from the mortgage and take it over yourself, you may need to get creative. When you negotiate a divorce settlement, consider proposing an agreement like this:

• You and your spouse both remain on the mortgage until you’re able to refinance
• You will make all mortgage payments as agreed
• When you refinance, you will buy out your spouse’s equity

This arrangement may be enticing for your spouse. As your home appreciates in value, the dollar amount of equity your spouse has will grow. When you refinance and buy out your spouse’s share of the house, they will likely receive a sizeable payout.

Selling the Home

As soon as you file (or receive) divorce papers, you know that almost every facet of your life is about to change. Holding onto your home may give you a sense of security, but if it’s looking like refinancing will be impractical, selling may be the best option.

When you and your spouse sell the home and split the profits, you can purchase a new home to start a new chapter in your life.

Need a Divorce Lawyer?

Navigating the post-divorce refinancing process can feel like a minefield. If you want to simplify and streamline the process, a divorce lawyer might be able to help.

Whether you need to learn how to file for divorce or need specific guidance on post-divorce refinancing, the ConsumerShield team can connect you to an attorney who suits your needs. Fill out our form for a free case review!