Refinancing to buy out a spouse in a divorce.

When one spouse keeps the house in a divorce, they usually need to refinance to take the other spouse off the mortgage and pay out their share of the equity. How the lender classifies that refinance matters, because it affects both the loan limit and the price.

The equity buyout option (Fannie Mae)

Fannie Mae allows a buyout to be treated as a limited cash-out refinance — which usually prices better than a regular cash-out — when all of these are true (Selling Guide B2-1.3-02):

• The property was jointly owned for at least 12 months before the new loan funds (an exception applies to recent inheritance).
• Everyone signs a written agreement stating how the property is transferred and how the proceeds are paid out.
• Joint ownership is documented.
• The spouse keeping the home receives none of the proceeds and qualifies for the loan on their own.

In this setup the loan can pay off the existing mortgage and pay the departing spouse their equity.

When it's a regular cash-out instead

If those conditions aren't met — for example, you also want cash for yourself — the refinance is a standard cash-out:

• Up to 80% of the value on a one-unit primary home (conventional or FHA).
• The usual 6-month time-on-title rule is waived for property awarded through divorce, separation or dissolution of a domestic partnership.
• The 12-month rule on the existing first mortgage still applies for conventional loans.

Typical steps

1. Get the settlement agreement or decree drafted so it clearly says who keeps the home and what the buyout amount is.
2. Get pre-approved on your income alone. Court-ordered support you'll receive may count as income once it's documented and expected to continue.
3. Order the appraisal to confirm there's enough equity.
4. At closing, the loan pays off the old mortgage and the buyout amount; your ex signs any required documents to transfer title.

Things to watch

• Qualifying alone is the biggest hurdle — the payment has to fit your income.
• Equity: if the buyout plus the payoff is above 80% of the home's value, you may need a VA loan (if eligible) or a smaller buyout.
• Timing with the court: lenders generally need the final agreement before closing.

This is general mortgage information, not legal advice. Work with your attorney on the agreement.

Related: Cash-out refinance requirements · VA cash-out refinance · Cash-out calculator