How to Refinance a VA Loan After a Divorce
Divorce is never easy. You're splitting assets, explaining the situation to the kids, and figuring out how you want to live in this new phase of life. If that weren't difficult enough, trying to figure out what happens to your VA loan after a divorce adds a whole other layer of complexity. That's because VA loan benefits have very specific rules about who can carry the mortgage and whether or not they live in the home.
Getting a divorce won't always directly affect your mortgage, but chances are it will affect your finances—and possibly your ability to make your monthly payments. Think about it. You're probably not going to be combining your incomes to make mortgage payments now that you're divorced. Even if you were the primary earner and your partner stayed at home to watch the kids, it's likely they will need to go back to work and the two of you will need to split childcare costs to accommodate that.
Speaking of splitting costs, alimony and child support might now be expenses either coming in or going out of your bank account each month.
Do you have to refinance your VA loan?
Since your home is probably a shared asset, the first thing you have to do is figure out who's going to keep it and how the other person is going to be compensated for the loss of that asset. Let's say you're going to keep your home and your partner is going to find a new place to live. You might have to refinance your loan in order to a) get your partner's name off the mortgage and deed and b) lower your monthly payments so your budget is more achievable. Here's how a few scenarios would play out.
If the VA loan is in your name
In this scenario, you're the veteran, you applied for the VA loan, and everything is in your name. Great! That makes things a little less complicated. If you're still able to make the mortgage payments, then there's no pressing reason for you to refinance your loan. You are going through some big personal and financial changes right now, so it might be a good idea to take a look at interest rates in your area anyway.
While you're figuring out a new budget and making plans for life after divorce, it could be a good time to refinance if it will lower your monthly payments or decrease the life of your loan. Remember, there are fees associated with refinancing, so be sure you factor those in when you calculate whether or not it's a good time to refinance.
If the loan is in your name, but you need your partner's income to make the payment
In this case, you're probably going to want to explore refinancing in order to lower the monthly payment. Be sure your lender is considering any alimony and childcare payments your partner will owe you since these count as income and can be used to make the mortgage payment. Make sure that your new monthly payment is something you feel comfortable paying each month. If it's not, then you might want to consider selling the home and either renting or buying something smaller.
If the loan is in your partner's name
If the loan is in your partner's name and you're staying in the house, you'll definitely need to refinance. In this case, your partner would be the veteran and since they're not going to be living there, they won't meet the occupancy requirement for VA loans. You'll need to look for a lender who can help you refinance from a VA loan to a conventional loan.
How to refinance your VA loan
If you're a veteran and you want to refinance your existing VA loan, then you can use the Interest Rate Reduction Refinance Loan (IRRRL) program. Otherwise, you can opt to refinance your VA loan into a traditional loan. If you decide to refinance, you'll need:
- Pay stubs
- W2s, tax returns, and 1099s
- Proof of homeowners insurance
- Title Insurance
- Credit Report
- Proof of other existing assets
- Debt statements (include auto loans, student loans, existing mortgages)
- Certificate of Eligibility (if you're using another VA loan)
There's a lot to think about when it comes to refinancing your VA loan after a divorce. But with a little planning and some hardwork, you'll end up landing somewhere great!