Can I Assume My Mortgage After Divorce?

If you locked in a low rate a few years ago, refinancing to buy out your spouse can feel painful. Assuming the existing mortgage, meaning you take it over as is, can let you keep that rate. Sometimes it's the best move. Sometimes it isn't possible. Here's how to tell.

Which loans can be assumed?

As a general rule, government loans are assumable with the lender's approval: FHA, VA and USDA. Most conventional loans are not assumable in the usual sense.

For conventional loans there's an important detail. A federal law called the Garn St Germain Act stops a lender from calling the loan due just because the house is transferred to a spouse as part of a divorce. So you can usually keep the house and the existing loan stays in place. But your ex is still on that loan. The law protects the transfer, it doesn't release anyone.

The part people miss: release of liability

Taking over the payments is not the same as your ex being off the hook. Unless the lender formally approves a release of liability, the original borrower stays legally responsible for the debt. If payments are missed, it hits both credit reports.

To get a release, the servicer reviews the spouse keeping the house like a new borrower: income, credit and debts. If you qualify on your own, they can release your ex. On FHA loans this is a standard process. On VA loans, there's an extra wrinkle: the veteran's VA entitlement can stay tied to the loan unless the person assuming it is also an eligible veteran who substitutes their own.

Assumption vs refinance

An assumption keeps your rate and usually costs less to close. The catch is cash. It doesn't create money to pay your spouse their share of the equity. So it works best when:

• Your spouse takes other assets instead of equity, or
• The buyout is small enough to pay from savings, or
• You pay the buyout over time under the settlement

A buyout refinance replaces the loan, pays your spouse in one closing, and takes your ex off automatically. It costs more and the rate may be higher, but it's clean.

How long does an assumption take?

Longer than you'd think. Servicers move slowly, and 60 to 120 days isn't unusual. Build that time into your settlement deadlines so nobody is in breach while waiting on the servicer.

What I usually do

I run both options side by side: the assumption with the existing rate, and a buyout refinance at today's rates. Then you and your attorney can see the real monthly cost and cash needed for each before anything is signed.

General information only. Loan programs and servicer policies change, and this isn't legal advice.