When a couple decides to part ways, they must determine how assets will be divided, including the family home and likely a shared mortgage. What is known as a “mortgage assumption” can be a viable choice for some couples, but it does have legal and financial implications.

As its name implies, a mortgage assumption is when one spouse takes over a mortgage. It is an alternative to refinancing a loan. With an assumption, the loan terms are retained, including the interest rate, monthly payment, and remaining loan amount. This can be helpful when the terms in place are more favorable than the current market rates. In addition, the fees associated with an assumption are generally lower than refinancing fees.

However, a buyout of the other spouse’s equity may also be required. If the home is worth more than the mortgage, the spouse keeping the house may have to offer more cash, investments or other marital assets as part of the divorce agreement to compensate the other spouse for their share.

Additionally, the spouse keeping the marital home will also have that loan on their credit report—which could prevent them from getting future credit. They also will be responsible for all the future home costs, including property taxes, insurance, and maintenance.

The transfer of property ownership under an assumption will require specific documentation, such as a quitclaim deed, a qualified assumption agreement and any necessary lender criteria. For example, some lenders will require a divorce decree before they will consider a mortgage assumption, which can take 3-6 months to complete, whereas refinancing can sometimes be completed in less time.

Finally, note that the majority of mortgage loans are not assumable. However, those that do allow mortgage assumptions include government-backed mortgages (FHA, VA and USDA) and Fannie Mae and Freddie Mac conventional mortgages.

Separating assets and debts in divorce can be challenging. Hiring a top divorce attorney in Bucks County can help you evaluate your options and strengthen your position. Contact us at 215-340-2207 or email info@bucksfamilylawyers.com.