Understanding VA Loans and the Effects of Divorce
VA home loan mortgages are a fantastic benefit to qualifying veterans who meet the requirements set by the Department of Veterans Affairs, but what happens to a VA loan when a couple divorces?
The VA home loan is intended for military members who meet minimum requirements. Certain surviving spouses may be eligible for the VA loan benefit at the discretion of the Department of Veterans Affairs. However, certain questions need to be considered on behalf of the divorced, non-military spouse of a veteran as well as the veteran.
1. Can a divorced, non-military spouse keep the VA mortgage and the house? The answer depends partially on state law, but also the language of the legally binding mortgage contract and whether or not the spouse has an obligation on the current VA mortgage.
In cases where a non-military spouse is not legally obligated on the loan or listed on the title of the home, the non-military spouse would not be able to become responsible for the VA mortgage. The legal standing of the spouse where the home loan is concerned would be an essential factor.
2. Can a VA refinance loan be issued to buy out the equity of a divorced spouse? The eligible veteran may apply for a VA refinance loan to buy out the equity ownership of the other spouse in cases where the couple applied for the VA mortgage together once legally married. Lender standards, state law, and other factors may apply. Speak with a Certified Divorce Lending Professional (CDLP) to determine what is possible depending on circumstances, state law, and the terms of the existing VA loan agreement.
3. Can a divorced, non-military spouse who keeps the home refinance with a VA mortgage? In general, VA loan rules state that the same parties obligated on the original mortgage must also be obligated on the refinance loan. For example, a veteran and spouse who refinance will have no issues assuming they are eligible and otherwise qualified. However, if the veteran does not apply for the VA refinance loan when the spouse tries to refinance alone, a VA guarantee to refinance the loan is generally not possible for someone not named on the first mortgage, and who is not eligible for VA home loan benefits, apart from the standing of the legal marriage.
4. Can VA home loans be assumed in divorce? The Department of Veterans Affairs permits financially qualified applicants to assume a VA home loan from the original borrower. This is important for military members experiencing divorce and it’s important to know the following rule from VA Pamphlet 26-7:
“In certain instances, a veteran may seek release from personal liability when his or her former spouse acquires the property as the outcome of divorce proceedings, and the ex-spouse was jointly liable on the loan with the veteran prior to the divorce.”
In other cases, the veteran, “may be awarded the property and the ex-spouse may seek a release of liability.” Most VA loans today will require the participation and approval of the lender, again it is essential to speak with a Certified Divorce Lending Professional (CDLP) to discuss what is possible regarding VA loan assumptions as an alternative to refinancing or getting legal title to the property in some other way.
Important to Note: VA loan rules aren’t the only regulations for VA home loans.
Eligible VA borrowers who live in community property states may find that state law mandates how VA loans may proceed. Community property laws may dictate who has the obligation of debts incurred in a legal marriage.
Community property laws may require the qualifying veteran spouse’s participation in the initial loan process, but the degree of obligation beyond that point may depend on state law. This is also true of getting a divorce while the obligated spouse is still paying on a VA mortgage. State law will dictate how that financial obligation is to be treated in the divorce if the couple does not reach an arrangement on their own. (In some cases, the couple’s agreement may be overruled by state law regardless.)
A Certified Divorce Lending Professional (CDLP) can help you understand the implications that divorce can have on the current mortgage as well as recognizing the potential hurdles and opportunities of obtaining mortgage financing once the divorce is final. Working with a CDLP during the divorce settlement process will help set both divorcing spouses up for success post-decree as well as help in avoiding the inability to secure mortgage financing as ordered per final orders.
Always work with a Certified Divorce Lending Professional (CDLP) when going through a
divorce and real estate or mortgage financing is present.
