CDLP Divorce and VA Home Financing

Divorce mortgage planning offers significant benefits to divorcing military spouses, particularly when managing an existing VA Loan on the marital home. Collaborating with a Certified Divorce Lending Professional (CDLP®) can help identify strategic solutions tailored to these unique circumstances.

Understanding VA Loan Eligibility in Divorce

VA loans provide substantial benefits to eligible veterans. However, it’s crucial to understand that VA loan eligibility is exclusive to veterans and qualified surviving spouses. So, what happens when the marital home, secured by a VA loan, is awarded to one spouse during the divorce?

Options for Handling the Marital Home with a VA Loan

Non-Veteran Spouse Retains the Family Home

  1. Refinancing the Existing Mortgage:

    • The non-veteran spouse must refinance the existing VA loan with conventional financing, as VA loans are exclusive to veterans.
    • Often, refinancing is complicated by insufficient equity since VA loans typically involve 100% financing.

  2. Keeping the Existing Mortgage:

    • The veteran spouse remains legally obligated for the mortgage, even if the divorce settlement assigns payment responsibility to the non-veteran spouse.
    • The veteran's entitlement tied to the existing VA loan may limit their ability to secure another VA loan for a new home unless they have enough second-tier entitlement remaining.

Veteran Spouse Retains the Marital Home

There are three ways to remove the ex-spouse from the existing VA mortgage:

  1. Equity Buy-Out Refinance:

    • The veteran can apply for new VA financing to pay the equity share to the former spouse.

  2. Interest Rate Reduction Refinance Loan (IRRRL):

    • This option can remove the former spouse if there is a minimum interest rate improvement of 0.5%.

  3. Simple Release of Liability or Spousal Release:

    • If no equity buy-out is needed, a release of liability allows the veteran to retain the current mortgage terms without applying for a loan assumption.

Updated VA Assumption Process

As of June 1, 2023, the VA has simplified the assumption process, making it easier for veterans to obtain a release of liability for their former spouse. The servicer now handles the entire release of liability/spousal release process.

VA Circular 26-23-10 outlines the necessary steps:

  • Documentation Required:
    • A copy of the decree to dissolve the marriage or legal separation agreement awarding the property to the veteran.
    • A recorded copy of the legal document (e.g., quit claim deed) transferring ownership to the veteran.

Benefits of Working with a CDLP®

A Certified Divorce Lending Professional (CDLP®) provides invaluable support by:

  • Helping divorcing homeowners make informed decisions regarding home equity solutions.
  • Identifying potential conflicts between the divorce settlement, home equity solutions, and real property issues.
  • Integrating divorce mortgage planning into the overall process with a comprehensive understanding of family law, financial and tax planning, real property, and mortgage planning.

Early Involvement of a CDLP®

Engaging a CDLP® early in the divorce settlement process sets the stage for successful mortgage financing post-divorce. Their expertise ensures that the divorce settlement agreement incorporates the necessary details and clarity, leading to closure and peace of mind.

Conclusion

Divorce mortgage planning is essential for divorcing military spouses dealing with VA loans. By working with a CDLP®, divorcing homeowners can navigate the complexities of VA loan assumptions, ensuring a smoother transition and better financial stability.

For more information and to obtain the Divorcing Your Mortgage Homeowner Workbook, contact a CDLP® today. This guide will help you organize, prepare, and understand your mortgage financing position, whether you need to refinance the marital home in an Equity Buy-Out or prepare to sell and purchase a new home post-divorce.

Disclaimer: This information is for educational purposes only and not intended as legal or tax advice. Consult an attorney or tax professional for specific advice. Interest rates and fees are estimates for informational purposes and are subject to market changes. This is not a commitment to lend. Rates change daily—call for current quotations.

Copyright 2024 Divorce Lending Association. No portion of this post may be reproduced without written consent from the Divorce Lending Association.

 

 

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