Cash-out refinance in a divorce: how to buy out your spouse and get their name off the loan

8 min read · LenderMatch Learn

You can use a refinance to buy out your spouse in a divorce: the new loan pays off the joint mortgage and pays your spouse their share of the equity, and because the new loan is in your name alone, it also takes them off the mortgage. Under Fannie Mae's rules, if you owned the home together for at least 12 months and both sign a written agreement, the buyout counts as a limited cash-out refinance rather than a cash-out. That can let you borrow up to 95% of the home's value instead of the 80% cash-out cap.

You have to qualify for the new loan on your own income, and the rate applies to your whole balance. Below are the rules, a $500,000 example, timing with the decree and the alternatives. This is general information, not legal advice: how the equity is split is up to your settlement, so talk to a family-law attorney. When you're ready to price the loan, comparing several lenders' offers shows what the buyout would cost.

How does a house buyout work in a divorce?

In a buyout, one spouse keeps the home and pays the other for their share of its equity. Your divorce settlement or court order decides what that share is. Some couples split the equity evenly, some trade it against other assets such as retirement accounts, and the rules for dividing property differ by state. The IRS lists nine community property states, mostly in the West and South, where most property acquired during the marriage is treated as belonging to both spouses; other states divide property under their own rules. A family-law attorney can tell you how your state treats your home.

Once the amount is set, the spouse keeping the home needs the cash. The most common source is a new mortgage that is large enough to pay off the joint loan and pay the buyout. Other options are savings, a HELOC or home equity loan, or selling the home and splitting what's left.

Equity buyout refinance vs cash-out refinance

Fannie Mae treats a refinance that "requires one owner to buy out the interest of another owner" as a limited cash-out refinance when the home "was jointly owned for at least 12 months" before the new loan closes (Selling Guide B2-1.3-02, October 8, 2025). The conditions:

• A written agreement. "All parties must sign a written agreement that states the terms of the property transfer" and how the refinance money will be split.
• Proof of joint ownership for those 12 months.
• No cash to you. "Borrowers who acquire sole ownership of the property may not receive any of the proceeds from the refinancing."
• You qualify alone. The person buying out the other "must be able to qualify for the mortgage" under Fannie Mae's guidelines.

Loan-to-value limits are from Fannie Mae's Eligibility Matrix (August 5, 2026) for a one-unit primary home; the 97% limit applies to some fixed-rate loans when Fannie Mae owns the loan being refinanced. Above 80%, a conventional loan typically needs mortgage insurance. Lenders can set stricter limits, and FHA and VA loans have their own rules.

If you owned the home together for less than 12 months, the buyout generally falls under the cash-out rules instead. Even then, Fannie Mae waives its usual six-month title wait when a borrower "was legally awarded the property" in a divorce or separation, and its rule that the old mortgage be at least 12 months old doesn't apply "when buying out a co-owner pursuant to a legal agreement" (B2-1.3-03, December 10, 2025). Our guide on how soon you can do a cash-out refinance covers the other waiting periods.

Worked example: buying out a spouse on a $500,000 home

Say your home is worth $500,000 and you owe $250,000 at 3.50% with 25 years left, a principal and interest payment of $1,252. Your settlement gives each of you half the equity.

1. Equity: $500,000 minus $250,000 = $250,000. Your spouse's half is $125,000.
2. New loan: $250,000 payoff + $125,000 buyout + an example $7,500 of financed closing costs = $382,500, or 76.5% of the home's value. That is under 80%, so it would fit even the cash-out limit, and no mortgage insurance would typically apply.
3. New payment: at 7.32% (Freddie Mac's 30-year average, week of October 22, 2026), principal and interest is about $2,628, which is $1,376 more than today. Part of that increase comes from moving your $250,000 balance from 3.50% to today's rate.
4. Thin equity: if the home were worth $400,000 with $300,000 owed, half the equity is $50,000 and the new loan would be about $350,000 plus costs, over 87% of the value. That is above the 80% cash-out cap but within the higher limits for an equity buyout, with mortgage insurance.

Try your own numbers in the cash-out refinance calculator and check current averages on mortgage rates this week.

Can I refinance before the divorce is final?

Fannie Mae's buyout rule turns on a signed written agreement covering the property transfer and the refinance money, rather than on the divorce being final. In practice, your lender may also ask for the divorce decree, a signed settlement or a separation agreement. Plan the order with your attorney and lender:

1. Agree on the home's value (often with an appraisal) and the buyout amount in your settlement.
2. Get the written agreement or decree that awards you the home and sets the payment.
3. Apply for the refinance in your own name and send the lender those documents.
4. At closing, the old loan is paid off, your former spouse is paid their share and ownership passes to you under the agreement.

Qualifying on one income after a divorce

The new loan rests on your income alone. Fannie Mae's rules on support payments (October 7, 2026) affect both sides of the ledger:

• Support you receive can count as income with "a minimum six-month history" of payments and proof it will continue "for at least three years from the application date." A divorce decree or a separation agreement (if the divorce isn't final) documents the amount.
• A lump-sum equalization payment is not counted as steady income.
• Support you pay counts as a monthly debt if it must continue for more than ten months (B3-6-05, August 5, 2026).

Lenders set their own debt-to-income limits.

Do you have to refinance to remove an ex-spouse from the mortgage?

Not always, but something has to change with the lender. A divorce decree "may allocate debts to a specific spouse," the CFPB says, "but it doesn't change the fact that a creditor can still collect from anyone whose name appears as a borrower." A quitclaim deed takes your ex off the title, not off the loan.

There are two main ways to get the departing spouse released:

• Refinance in your name. The new loan pays off the joint one, which ends your ex's obligation on it.
• Assume the loan with a release of liability. In a December 2024 report, the CFPB said homeowners "do not generally need to refinance" to remove a borrower's name if they can take over the loan and meet the lender's or investor's underwriting standards, and that servicers must process those requests in a timely way. This keeps your current rate, but it does not raise cash for a buyout.

For the spouse who moves out, Fannie Mae has a rule that helps with the next home: when a court order assigns a debt to the other spouse and the creditor hasn't released you, that contingent liability doesn't have to be counted in your monthly debts (B3-6-05).

Using a HELOC or home equity loan to buy out a spouse

If your mortgage rate is well below today's, a second loan can pay the buyout without touching it. In the example above, keeping the $1,252 payment and drawing $125,000 on a HELOC at an example 8.00% (prime at 7.00%, unchanged since September 17, 2026, plus a 1.00% margin) costs about $833 a month interest-only, for a total near $2,085 instead of $2,628. The combined loans would be 75% of the home's value.

The catch is the first mortgage. A HELOC doesn't remove your former spouse from it, so this route usually pairs with an assumption and release, or works when the existing loan is already in your name alone. The HELOC rate also moves with prime (see today's prime rate). Cash-out refinance vs HELOC and how much equity you can borrow go deeper on both. If the home is a Texas homestead, the state has extra rules on home equity borrowing; see Texas cash-out refinance rules and ask your lender and attorney how they apply.

Frequently asked questions

Can you do a cash-out refinance to buy out a spouse?

Yes. Under Fannie Mae rules, if you and your spouse jointly owned the home for at least 12 months and sign a written agreement, the buyout is treated as a limited cash-out refinance. The new loan pays off the old mortgage and pays your spouse's share, and you must qualify on your own.

Do you have to refinance to remove an ex-spouse from a mortgage?

Not always. The CFPB says homeowners generally do not need to refinance to remove a borrower's name if they can assume the loan and meet the lender's or investor's underwriting standards. Refinancing in your own name is the other common route.

Can I refinance before my divorce is final?

Fannie Mae's buyout rule asks for a written agreement, signed by all parties, that states the terms of the property transfer and how the refinance money will be split. Your lender may also ask for the divorce decree or a separation agreement, so ask what it needs before you apply.

Does a quitclaim deed remove my ex from the mortgage?

No. A quitclaim changes who owns the home (the title), but the mortgage is a separate debt. The CFPB notes that a creditor can still collect from anyone whose name appears as a borrower, whatever the divorce decree says.

Can I use a HELOC to buy out my spouse?

You can use a HELOC or home equity loan to pay the buyout, which keeps your current mortgage rate. But it does not take your ex off the existing mortgage, so you would still need an assumption with a release of liability or a refinance to do that.

Does LenderMatch check my credit?

No. LenderMatch never pulls your credit. A lender you choose may check it, with your permission, when you apply.

See what a buyout refinance could cost from several lenders →