Aside from the emotional stressors of divorce, several practical considerations must be addressed when a married couple chooses to go their separate ways. Determining how to handle jointly-owned real estate is one consideration, and if you have a mortgage, your home loan debt is probably one of your largest liabilities.
Deciding what to do with real estate holdings is a big decision for all couples going through a divorce. But for couples who financed their home with a VA loan, there are even more potential complications to consider.
Civilian ex-spouses can keep the home secured by a VA loan after a divorce as long as they assume the VA loan or refinance to another loan type. In many cases, assuming the existing VA loan is beneficial because VA loans often come with lower interest rates and lower fees than other loan types.
You have several options when it comes to handling the property after divorce. You could sell the home, refinance the civilian spouse off the loan, have the civilian spouse assume the loan, or seek a release of personal liability on the VA loan.
Let's look at each option in greater detail.
Selling the property offers a clean break for you and your ex. The home is sold, and the proceeds from the sale are used to pay off the VA loan, with the remaining profit split between the two parties. Then, you can each go your separate ways without further obligations to the property.
Check our Home Sale Calculator to see how much you could make from the sale of your property.
Can you remove a spouse from a VA loan? Absolutely. If you are entitled to VA loan benefits, and your spouse is a civilian, you can remove your spouse from that loan through a refinance of your existing mortgage. In many cases, VA borrowers can use the VA’s IRRRL refinance, also known as a streamline refinance, to minimize the time, expense, and paperwork required.
Your ex is removed from the loan and the property’s title during the refinance, meaning they no longer have any responsibility or claim to the property, and you will now be the sole owner.
If the civilian spouse is keeping the home, it’s possible to refinance the Veteran off the VA loan using a conventional refinance.
A VA loan assumption after a divorce is possible as long as the civilian meets the lender’s requirements in terms of credit and income. As the Veteran, you would then be released from any further responsibility for the property.
But this option has a significant potential downside: Your VA entitlement would remain with the property.
In this scenario, you would have to wait until the debt on the VA mortgage was paid in full before you can restore your entitlement. Not having your full VA entitlement would limit your $0 down purchase power -- and possibly mean you're unable to use the benefit at all.
While surviving spouses of Veterans can be eligible for VA loan benefits, ex-spouses are not. Divorced military spouses can only get a VA loan if they remarry another military service member or Veteran who is eligible for VA loan benefits or serve in the military themselves.
VA loan occupancy rules state that VA loans can only be used for primary residences. This limits the Veteran’s options for handling the property. For example, it would not be possible for a Veteran to retain ownership of the property while living elsewhere and renting the property to the civilian spouse. This would make the home an income property, which would be a breach of the mortgage contract.
Your VA loan entitlement allows you to access your VA loan benefits. Once you purchase a home with a VA loan, your entitlement generally remains with that home until the debt is paid in full.
But in the case of divorce, your VA loan entitlement could be restored through refinancing the Veteran off the loan, selling the home, having the civilian assume the mortgage or seeking a release of liability.
VA loan entitlement is complex even under the best circumstances. This means that complicated situations like divorce can make your entitlement exceedingly difficult to navigate.
To gain more clarity on your entitlement, contact a home loan specialist.
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