There are any number of programs that can help you refinance your home and get your ex-spouse's name off the mortgage. The trouble is, most of them require good credit. After a divorce you may not have good credit. There is also the problem of a first mortgage being underwater or upside down. A HELOC loan could help, but there are some major restrictions. If you can get past all of the following restrictions, and you are willing to take the risks that come with the fluctuating interest rates on a HELOC, then it might be a good solution for you.
HELOC Loans and How to Get Them
First and foremost, you have to understand that "HELOC" stands for "home equity line of credit" or a home equity loan.
To get a HELOC, you have to:
- Have ownership in a home
- Have fair credit, although the better your credit is, the easier the application process will be
- Have some equity in your home, which means that your current mortgage has to have a chunk of the interest paid off before you can apply for a HELOC
- Have a valid bank account with the lender who extends the HELOC to you (The bank will draw payments for the HELOC from your account with them.)
Depending on the lender, there may be a few more restrictions or qualifications required to get a HELOC.
Drawing up to the Paid Value of Your Home
Despite the fact that HELOCs are based on the value of your home, you can only borrow up to the paid in full value on your home. If you have managed to pay off $20,000 in principal on your home, your HELOC could be up to and including $20,000. Too many people get the idea that it is the full value of their home and property, based on some of the really large numbers used as examples in the financial blogs on HELOCs. Ergo, this is clarified here so that you are not disappointed by a much smaller amount of HELOC when you are offered the contract and the money at signing.
Getting Your Ex's Name off the Mortgage
After a divorce and the division of property, it is only natural that one partner attempt to remove the name of the other partner from the mortgage. If your HELOC does not come close to paying off the full amount you still owe on the house, you may be able to use the HELOC to refinance under FHA or other programs. The HELOC would act as a downpayment for these programs, as if you were buying out the other partner's "share" of the marital home. Then you would have both the mortgage and the HELOC to pay every month, but at least you could remove your ex's name from the title/deed.
For more information, talk to a professional like Rio Grande Credit Union.