Mortgage and Divorce in Tennessee

Removing a spouse from the mortgage

A divorce decree that awards the home to one spouse does not remove the other spouse from the mortgage. The only way to remove a co-borrower from a mortgage is to refinance the loan in the remaining borrower's name alone. The remaining borrower must qualify for the new loan based on their income, credit, and the property's current value.

If the remaining borrower cannot qualify alone, the departing spouse remains legally obligated on the mortgage — which affects their ability to qualify for a new mortgage on a different property. This is one of the most common mortgage complications in divorce proceedings.

Buying out a spouse's equity

If one spouse is keeping the home and the other has equity to receive, a cash-out refinance can fund the buyout. The refinance pays off the existing mortgage and provides cash to the departing spouse. The remaining borrower must qualify for the new, larger loan amount.

The divorce decree or settlement agreement must specify the equity split and the buyout amount. Lenders will require this documentation as part of the refinance.

Alimony and child support as income

Alimony and child support received can be counted as qualifying income if:

• The payments are documented in a divorce decree or court order
• The payments have been received consistently for at least 6 months
• The payments will continue for at least 3 years from the date of the mortgage application

Alimony paid (not received) is counted as a monthly debt obligation and increases DTI.

Buying a new home after divorce

If you're purchasing a new home after divorce, lenders will want to see the finalized divorce decree. If you're still on the mortgage for the marital home (even if the decree assigns it to your ex-spouse), that payment counts in your DTI unless you can document that your ex has been making the payments for at least 12 months. A quitclaim deed alone does not remove the mortgage obligation.