Divorce can be a whirlwind of emotions and legal considerations. One of the biggest questions you may face is what happens to the family home.

If you’ve been through the ups and downs of divorce in California, you’ve likely asked yourself, "Can I assume the mortgage?" For many, staying in the home is important—whether for stability, familiarity, or keeping life as steady as possible for the kids.

The good news is, in certain situations, assuming a mortgage is possible in California. Let’s walk through what that process looks like, and whether it's a good option for you.

What is a Loan Assumption?

A loan assumption allows you to take over the current mortgage, keeping the original interest rate and payment schedule. Essentially, the loan is transferred into your name alone, and your ex-spouse's name is removed from it.

This is different from simply continuing to pay the mortgage without assuming it—because with a loan assumption, you become solely responsible for the debt, and your ex is legally off the hook.

Assuming the loan allows you to keep the same monthly payments, which can be especially helpful if you secured a great interest rate.

But here's the key: while you take on the financial responsibility, your ex-spouse will no longer be tied to the loan, giving both parties a clearer financial path forward.

Why Consider Loan Assumption?

Here’s why assuming the mortgage can be beneficial during a divorce:

• Removing your ex-spouse’s name: Assumption removes your ex from the mortgage, so they won’t have any more ties to the house or the loan.
• Keeping the interest rate: If you locked in a low interest rate before rates spiked, the assumption can preserve this advantage.
• Avoiding closing costs: Unlike refinancing, assuming the mortgage allows you to skip many of the closing costs that come with a new loan.
• Stability for your family: Keeping the home may provide much-needed stability, especially if children are involved, avoiding the disruption of moving.
• Control over the property: Once the mortgage is in your name, you’ll have full control to sell, refinance, or borrow against the property in the future without involving your ex.

Types of Mortgages and Assumability

Some loans are assumable, but it's crucial to know your mortgage type. Here's a breakdown of the common types:

Assumable vs. Non-Assumable Loans

• FHA, VA, and USDA loans: These types of loans generally allow for assumption, meaning you can take over the loan without triggering major complications.
• Conventional loans: Most conventional loans have a "due-on-sale" clause, meaning they can't be assumed when ownership changes. However, there are exceptions to this rule, particularly in cases of divorce.

Garn-St. Germain Act

The Garn-St. Germain Act permits certain mortgage assumptions in divorce cases, even for conventional loans. Basically, it can help you avoid the "due-on-sale" clause in some situations, making it easier to assume a mortgage during a divorce.

VA Loan Considerations

For veterans with a VA loan, assumption is possible, but there’s an important caveat. If a non-veteran ex-spouse assumes the loan, it may impact the veteran’s entitlement to future VA loans.

It’s worth discussing this with your lender or an attorney to understand the full implications.

How to Qualify for a Mortgage Assumption?

Start by contacting your lender if you're interested in assuming the mortgage. Here’s a general rundown of what’s involved:

• Lender approval: First and foremost, you’ll need the lender’s blessing to assume the loan. Start by contacting them early in the divorce process to see if assumption is even possible.
• Creditworthiness: Lenders will want to ensure that you’re financially able to handle the mortgage payments. They’ll consider factors like your credit score, debt-to-income ratio, and overall financial history.
• Required documentation: Be prepared to provide a variety of documents, including your divorce decree, pay stubs, bank statements, and credit reports. The lender will want a full picture of your financial situation.
• Divorce decree language: Make sure your divorce decree clearly states the terms of any spousal support or property division that might affect your ability to assume the mortgage.

The Loan Assumption Process

Here’s a quick guide to the steps involved in assuming a mortgage:

1. Consult your divorce decree: Ensure it outlines terms regarding the home and mortgage.
2. Contact your lender: Find out if your mortgage is assumable and what the requirements are.
3. Undergo credit evaluation: Your lender will look at your financial health to determine if you qualify.
4. Provide documentation: Gather and submit all necessary financial documents.
5. Negotiate terms: Work with the lender to finalize the assumption details.
6. Sign the agreement: Once the lender approves, you’ll sign the assumption agreement to transfer responsibility.
7. Legal and financial adjustments: Update legal documents and pay any fees.
8. Notify relevant parties: Inform your homeowners' insurance, HOA, and other relevant entities.

Costs Involved in a Mortgage Assumption

You may avoid closing costs, but other fees still apply:

• Assumption fees: Lenders typically charge a fee for processing the assumption, so be prepared for this.
• Credit report, appraisal, and legal fees: Additional costs may include obtaining your credit report, appraising the property, and covering legal fees.
• Equalization payments: If there’s a disparity in the home’s value after the assumption, an equalization payment may be required to even things out between you and your ex.

A Word of Caution

Before jumping into a mortgage assumption, be sure to understand the potential risks:

Liability

If the loan goes into default after you assume it, your ex-spouse might still face some legal responsibility, depending on the terms of the original loan.

Lender Communication

It’s critical to communicate clearly with the lender and ensure all potential risks are discussed before signing on the dotted line.

Alternatives to Mortgage Assumption

If assuming the mortgage after divorce isn’t the best option for you, there are several alternatives to consider.

Each offers a different approach to managing the family home and navigating your financial future, depending on your personal goals and circumstances.

Refinancing

One of the most common alternatives is refinancing the mortgage. This involves obtaining a new mortgage in your name alone, essentially replacing the existing mortgage.

While refinancing can give you full control over the property, it often comes with closing costs and depends on your creditworthiness and income. If you qualify, it can be a clean way to separate finances from your ex-spouse.

Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) allows you to access the equity in the home to finance a buyout of your ex-spouse’s share. This option is particularly useful if you wish to remain in the home but need cash to settle the division of property.

However, it increases your overall debt and may require careful planning to ensure payments are manageable.

Selling the Home

Selling the home is a straightforward option that allows both parties to divide the proceeds and move on.

This can be an ideal choice if neither spouse can afford the mortgage on their own or if the home holds too many emotional ties. Selling provides a clean financial break, enabling both parties to start fresh.

Buyout Arrangement

In a buyout arrangement, one spouse purchases the other’s share of the home. This allows the buying spouse to retain ownership without the need for refinancing or mortgage assumption.

It can be a simpler solution, provided the buying spouse can afford to pay the agreed value of the ex-spouse’s share.

Purchasing a New Home

Purchasing a new home provides a fresh start, allowing both individuals to move forward without the financial and emotional connections to the previous family home. For many, this can be the best way to begin a new chapter and start building equity in a different property. Financial and Tax Considerations

When considering mortgage assumption during a divorce, it's important to think about the financial and tax implications.

Assuming a mortgage can have a direct impact on your credit and debt-to-income ratio, which lenders carefully assess. This change could affect your ability to take on new loans or credit in the future, as your debt load will increase.

You might also benefit from tax advantages, such as the mortgage interest deduction, which could reduce your taxable income and help ease the financial burden.

However, other costs like property taxes and home maintenance are now solely your responsibility. Additionally, you’ll need to be mindful of potential capital gains taxes if you eventually sell the property.

Refinancing options may become more limited depending on your financial standing after the assumption. Insurance policies for both the home and mortgage will also need to be updated to reflect your new sole ownership.

Facing Divorce in California? We Can Help.

Divorce is never easy, and when it comes to the home, emotions can run high. At Holstrom, Block & Parke, APLC, we understand the importance of protecting your future.

Our team of Certified Family Law Specialists is ready to guide you through every step of the process. Contact us today at 855-426-9111  for a consultation, and let us help you find the best solution for your unique situation.