Divorce can feel like you’re trapped in a maze, and for many in California, the challenge of refinancing a mortgage after the split adds another layer of confusion. Whether it’s credit issues, income changes, or even trouble with an uncooperative ex, refinancing isn’t always a smooth process.
At Holstrom, Block & Parke, APLC, our team has over 300 years of combined experience in family law, helping clients just like you through the ups and downs of post-divorce financial matters.
In this article, we’ll explore what could be preventing you from refinancing and what steps you can take next.
Common Reasons for Refinancing Difficulties After Divorce in California
After a divorce, a lot can change, including your financial situation. You might find that despite your best efforts, the road to refinancing isn’t as simple as you thought.
Here are some common issues that may be standing in your way.
Credit Score Issues
Divorce can wreak havoc on your finances, and one of the first things to take a hit is often your credit score. Late payments, shared debts, and even the expenses of the divorce itself can lower your score.
When it comes to refinancing, lenders rely heavily on that score to determine if you qualify for better loan terms.
Repairing your credit is a great first step—consider paying off smaller debts first and checking your credit report for any mistakes that might be dragging you down.
Income Changes
After your divorce, your income might change a lot compared to when you were married. Whether you’re getting or paying spousal support, or adjusting to living on a single income, these changes can impact your debt-to-income ratio (DTI).
Lenders consider DTI a key factor in loan approval. To improve this ratio, try paying down existing debts or increasing your income with a side hustle or other work opportunities.
Equity Requirements
Another stumbling block is equity. Simply put, equity is how much of the home you truly own versus what’s still owed on the mortgage. If the home was divided in the divorce, your share of the equity might not be enough to qualify for refinancing.
In that case, waiting for the property value to increase or paying down more of the mortgage might be your only option.
Outstanding Debts
Joint debts or obligations like spousal support can make refinancing more difficult. If you’re still sharing debts with your ex, it can hurt your financial profile and make lenders see you as a higher risk.
It’s essential to manage and pay off these obligations as soon as possible. You might want to look into consolidating your debts or working out a repayment plan with your creditors.
Lack of Cooperation from Ex-Spouse
Sometimes, the roadblock isn’t financial—it’s emotional. If your ex-spouse is unwilling to cooperate or respond to your efforts to refinance, things can grind to a halt. In these situations, clear communication is key.
It’s a good idea to try negotiating, but if things keep stalling, you might need to get legal help to enforce the divorce decree.
Lender Risk Assessment
Lenders are usually careful when dealing with people who have just gone through a divorce. They often view this as a risky time, which could make them less likely to approve your refinancing application.
You can counter this by strengthening your financial profile through steady income, paying down debts, and proving you can handle the loan.
What to Do if You Can’t Refinance After Divorce
If you’ve tried refinancing and hit a wall, don’t lose hope. There are still options available to you. Let’s walk through some potential solutions.
Review Your Divorce Decree
Before panicking, review your divorce decree for terms about property division and refinancing.
Knowing exactly what’s required of both parties can help you move forward or, at the very least, give you a starting point for further negotiations.
Communicate with Your Lender
Reach out to your lender and discuss your situation. Sometimes, just having a conversation can reveal alternative options that you may not have considered.
Ask if there’s flexibility in loan terms or whether they offer programs for individuals in your situation.
Consider a Loan Modification
If refinancing is out of reach, a loan modification might be a good alternative. This allows you to adjust your existing loan terms without having to take out a new loan.
It's worth asking your lender about this option and what steps are involved in the modification process.
Explore Selling the Property
If holding on to the home is causing too much financial strain, selling might be the best solution. Selling the property can provide a clean break and allow both parties to split the proceeds. Be mindful, though, that this could trigger tax implications, so it’s a good idea to consult with a tax professional.
Release of Liability
You may also consider requesting a release of liability from your lender. This option removes one party from the loan, leaving the remaining spouse fully responsible.
It’s a process that requires lender approval, and they’ll assess the remaining borrower’s ability to take on the loan alone.
Loan Assumption
Loan assumption allows one spouse to take over the existing mortgage. This can be a way to avoid refinancing altogether, but it requires financial qualifications that meet the lender’s standards.
If approved, you take on the loan without needing a new one.
Negotiate an Extended Timeframe
Sometimes, you just need a little more time. If you and your ex can agree to extend the refinancing timeline, this can ease the pressure. Make sure any agreements are properly documented to avoid future disputes.
Buy Out Your Ex-Spouse
Another option is to buy out your ex’s share of the property. This involves getting the property appraised, calculating the cost of the buyout, and working out an asset exchange if necessary.
Creative Settlement Solutions
If refinancing isn’t possible right now, you could try finding a creative solution with your ex-spouse. For instance, one person could agree to make the payments until refinancing becomes an option, or you might trade assets to keep the house.
Seek Legal Counsel
When things get complicated—and they often do in these cases—it’s critical to seek legal advice. A qualified family law attorney can help you navigate your rights and explore legal options if your ex isn’t complying with the divorce decree.
Facing Refinancing Challenges After Divorce? Holstrom, Block & Parke Can Help
Refinancing after a divorce can feel overwhelming, but you don’t have to go through it alone. At Holstrom, Block & Parke, we’re here to help guide you through the process and find solutions that work for you.
With over 300 years of combined experience in family law, our team understands the financial and legal challenges that come with divorce. Contact us today at 855-426-9111 for a consultation with one of our Family Law Specialists. We’re ready to help you take the next step forward.