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By Brian Lee Burke, the hardest working man in real estate. Licensed since 2003. The Kenna Group at Keller Williams DTC.
An assumable mortgage in a divorce can be the difference between keeping the house and having to sell it. If you locked a 3% loan in 2020 or 2021, refinancing into today's rates (see our live Colorado mortgage rates) could add hundreds of dollars a month to the payment. So more Colorado couples are asking whether one spouse can assume the mortgage after the divorce, keep the old rate and take the other spouse off the loan. Sometimes the answer is yes. Here's how it works, and where it goes wrong. For a free value and equity number for your Denver-metro home, call or text 303-955-4220 (a live person answers).
We are real estate brokers, not lenders, attorneys or tax advisors. Loan rules change and every servicer is different. Confirm everything with the loan servicer, a licensed loan officer and your Colorado divorce attorney.
Three things that get mixed up
Most of the confusion comes from treating three separate steps as one:
- The deed (title). Who owns the house. In a divorce, the departing spouse usually signs a deed to the spouse who keeps it, as the decree or separation agreement directs.
- The loan (the note). Who owes the money. Changing the deed does not change who owes the lender.
- The release of liability. The lender's written agreement that the departing spouse no longer owes the debt. Only the lender can grant it. A divorce decree can't.
You need all three lined up for a clean result.
Which loans are assumable in a divorce?
- FHA loans are generally assumable by a buyer who qualifies. In a divorce, the spouse keeping the house applies with the servicer, and the servicer can release the departing spouse if the remaining borrower qualifies. Our Colorado FHA assumable homes page explains the assumption process.
- VA loans are assumable too, but watch the entitlement. If the veteran is the one leaving and the non-veteran spouse keeps the loan, the veteran's VA entitlement generally stays tied to that loan until it's paid off, unless another eligible veteran substitutes their entitlement. That can limit the veteran's next VA purchase. See Colorado VA assumable homes and our VA loan assumption guide.
- USDA loans can be assumable with lender approval.
- Conventional loans usually aren't assumable in a normal sale, but divorce is different. Federal law (the Garn-St Germain Act, 12 U.S.C. 1701j-3(d)) bars a lender from calling the loan due just because a decree transfers the house to the borrower's spouse. That means the spouse who stays can often keep the existing loan in place. But the departing spouse is still on the note unless the servicer agrees to a release, and policies on that vary.
The buyout math still has to work
Assuming the loan keeps the rate. It doesn't pay the departing spouse their share of the equity. That money has to come from somewhere:
- Other marital assets. For example, a larger share of a retirement account in exchange for the house. Ask your attorney and a CDFA (Certified Divorce Financial Analyst) about tax differences between assets.
- Savings or a second loan. Some owners take a second mortgage or HELOC behind the assumed first mortgage. That depends on the lender and your qualifying income.
- A payment plan written into the agreement. Have your attorney draft it carefully.
A quick example with round numbers: the house is worth $600,000, the assumable loan balance is $330,000, so the equity is $270,000. A 50/50 split means the staying spouse owes $135,000 to the departing spouse. Colorado divides property equitably under C.R.S. 14-10-113, so your split may not be 50/50. Run your own numbers with our Colorado mortgage calculator and the home equity guide.
How the process usually goes
- Pull the loan details. Loan type (FHA, VA, USDA, conventional), servicer, balance and rate from the latest statement.
- Call the servicer early and ask, in writing, for its assumption package and its release of liability rules for a divorce.
- Get the value. A free market analysis for planning, or a licensed appraisal if the attorneys need one. Start with our Smart Pricing Report.
- Qualify. The staying spouse applies on their own income. Some lenders can count alimony or child support once it's documented and expected to continue. Ask the loan officer what they need.
- Match the decree to the loan plan. Your attorney words the agreement so the deed, the assumption and the buyout payment happen in the right order.
- Close. The release of liability and the deed are recorded, and the departing spouse gets their payout.
Assumptions can take longer than a refinance. Build in time, and plan for the mortgage to keep getting paid the whole way through.
What to watch out for
- Signing the quitclaim before the release. Once you deed the house away, you lose your ownership but may still owe the loan. Ask your attorney about sequence.
- Believing "assumed" means "released." Get the release of liability in writing from the servicer.
- Ignoring the VA entitlement. A veteran who lets a non-veteran ex keep the VA loan may have less entitlement for the next home.
- Forgetting the payout. Keeping the 3% rate doesn't fund the buyout. Price that out first.
- Missed payments during the wait. A late payment hurts both credit reports and can derail the assumption approval.
- Assuming a loan you can't carry alone. If the payment, taxes, insurance and HOA don't fit one income, selling may protect you better. Compare both paths in what to do with the house during a divorce.