When Co-Borrowers Split, Problems Arise

July 19, 2000, Reviewed February 2, 2011

"I am going through a divorce, and have agreed to stay on the mortgage for 3 years. At the end of that time, my ex-wife can refinance the house in her name. How much will this impact my buying a new home during the 3 years?"

The loan will show up on your credit report when you apply for a loan. The lender may ignore it if you can document that your ex-wife has been making all the mortgage payments on time.

If you can't document your ex-wife's payments, the lender will assume you may one day have to make the payments. In such case, the old mortgage payment will be added to your other current debts in assessing your ability to pay.

Lender assesses your ability to pay with two industry-standard ratios. The first is your "housing expense ratio" -- the sum of your monthly mortgage payment, including mortgage insurance, property taxes and hazard insurance, divided by your monthly income. The second is your "total expense ratio", which adds your other debts to the numerator. If the lender won't disregard your wife's mortgage payment, it will be included in the second ratio.

For each of their loan programs, lenders set maximums for these ratios, such as, e.g., 28% for the first and 36% for the second. Whether the maximums would limit the amount of house you can purchase depends on how much you want to spend, your income, your other debts, and other factors. You can funnel these numbers through my Housing Affordability Calculator (5a).

"I am divorcing -- my husband is keeping the house and neither of us is in a position to "buy out" the other. How can I get my name off the mortgage so I can buy my own house?"

If both of your incomes are needed to service the existing mortgage, your problem is insoluble. If your ex-husband's income is sufficient to service that mortgage on his own, there are two possible ways to get off the hook. One way is to persuade the lender to take your name off the note. Since this would weaken the lender's claim, there is no reason the lender would agree to it unless you provided some inducement. An expressed interest in taking out a new mortgage with that lender might be an inducement, although you want to be careful you don't leave yourself with no bargaining power in negotiating the terms of a new mortgage.

The second possible approach is to induce your ex-husband to refinance under his own name. Depending on the interest rate on the existing mortgage, it might be financially advantageous for him to do this anyway.

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