Refinancing while divorcing is a very hard thing to do. Emotionally and financially, it can be very stressful. Finding an experienced mortgage lender in the state of Texas who is capable of handling this delicate situation is essential.
Texas is a common law state and if you are married and own Real Estate that is considered your primary residence with a homestead exemption, both spouses have equal rights to the equity in the home. Equity is the value of the home minus the mortgage loan amount. The Owelty Lien is designed to give each spouse what is owed to them as detailed in the divorce decree states. I have found that the Owelty Lien is one of the best tools in finance designed to help make the division of home equity possible without selling the home.
An Owelty Lien is also essential to remove one spouse from the existing mortgage. Most people erroneously believe that the divorce decree releases them from the responsibility of the mortgage debt. This is incorrect. Even if the decree awards the home to one spouse, if the other spouse is on the original mortgage they are still responsible for the debt and any delinquent or negative credit reporting will be reflected on both spouses credit report. Yikes!!
Often this is the last hurdle in a divorce and can be a very emotional transaction that requires attention to detail and empathy. Most lenders and loan officers are not even aware of this type of transaction and often times misguide clients through a Texas Cash-Out Refinance.
Owelty Lien Refinance and a Texas Cashout Refinance, What is the Difference?
Simply stated, the Owelty Lien Refinance is hands down the much better option than a Texas Cashout when settling the Real Estate variables during the divorce, and there are a number of reasons why.
Texas State Law states, once a cash-out loan, always a cash-out loan. This means that once you refinance your primary residence and take cash out of it, that mortgage is “flagged” as a Texas Cash-out mortgage or the legal term is, Texas a(6). There are a number of reasons why you would prefer that your mortgage not be a Texas a(6) mortgage.
1) All banks, lenders, and investors bump your interest rate a little higher when dealing with the Texas a(6)…this means that if you go to refinance your house a couple years down the road after you have gotten a Texas a(6), even if you are just refinancing to lower your rate/payment and taking ZERO cash from the equity, you still get “hit” with a little higher rate
2) Texas law says that you cannot take more than 80% of the equity in your home for cash…this means you are limited to an 80% loan-to-value on your mortgage. If you bought your home 5 years ago and only put down 5%, you likely do not have equity to the extent you could use a cashout, because you have to have more than 20% equity to start taking cashout…THE OWELTY LIEN FOLLOWS REGULAR LENDING GUIDELINES AND YOU WOULD BE ABLE TO REFINANCE IN AN OWELTY.
3) The transaction for a Texas a(6) is much more turbulent than an Owelty. There are waiting periods set into the a(6) and special documentation that does not’t typically get viewed and included in other loans that are included in the a(6) that wdivorhen not administered correctly can post pone the closing…better to use a loan officer with extensive Texas lending history rather than an online or TV commercialized lender where they are licensed in Texas but office in another state.
If you are in need of an Owelty Lien to finish the split of assets in your divorce, contact a Certified Real Estate Divorce Specialist – contact Cole today. No matter where you are in Texas, we can handle your process.