To Buy Out Her Ex-Husband’s Half of the House, the 12-Month Joint-Ownership Rule Decided Which Refinance She Could Get.

6 min read · Last updated October 5, 2026

Buying out an ex-spouse’s half of a jointly owned home qualifies for a limited cash-out refinance, the cheaper refinance category, as long as the couple held the property together for at least 12 months before the new loan closes and a signed agreement spells out where the money goes.

In this article

• Two different divorce refinances for a house buyout
• The 12-month test that decides your rate
• What has to be in writing before closing
• A worked example: buying out a $180,000 share
• Frequently asked questions

A refinance that pays off an ex-spouse’s half of the house can close at the same pricing as a simple rate-and-term refinance, not the costlier cash-out category, if the couple owned the home together for at least 12 months first. Renata needed $180,000 to buy out her ex-husband Carlos’s half of their paid-down house after their divorce settlement. The 12-month ownership test, not the dollar amount, decided which refinance category her lender could use.

Two different divorce refinances for a house buyout

Mortgage lenders split every refinance into two categories, and the category decides the pricing. A limited cash-out refinance pays off an existing loan and a short list of approved uses, priced close to a simple rate-and-term refinance. A standard cash-out refinance covers any other reason for pulling equity out of the home, and investors like Fannie Mae price it higher and cap it at a lower loan-to-value ratio to offset the added risk.

Most divorcing couples never hear about this distinction from anyone but their lender, and by then the pricing is already set. A loan officer who doesn’t ask about the ownership timeline, or isn’t told about the written settlement agreement up front, may quote the deal as a standard cash-out refinance by default, simply because that’s the safer assumption without documentation. Bringing the signed agreement and the original purchase date to the first conversation is what moves the loan into the cheaper category before pricing locks in.

Factor	Limited cash-out refinance	Standard cash-out refinance
Ownership history required	12+ months of joint ownership before the buyout	6 months on title, waived entirely if the property was awarded via divorce
What the proceeds can cover	Only the agreed buyout amount, per a signed written agreement	The buyout plus any other purpose
Pricing and LTV treatment	Priced near a rate-and-term refinance; higher allowed LTV	Priced higher; lower maximum LTV
Extra cash back to the borrower	Not allowed beyond the buyout itself	Allowed, with no cap tied to the buyout
Best for	A couple who jointly owned the home 12+ months and only needs to fund the buyout	A buyout happening sooner than 12 months, or when extra cash is also needed

The 12-month test that decides your rate

Fannie Mae’s Selling Guide states that a transaction requiring one owner to buy out another’s interest, as the result of a divorce settlement or dissolution of a domestic partnership, is considered a limited cash-out refinance if the property was jointly owned for at least 12 months preceding the disbursement date of the new loan. The spouse taking sole ownership still has to qualify for the full new mortgage on their own income, under normal underwriting, with no co-signer credit from the departing spouse.

If the couple hasn’t owned the home together for 12 months yet, the deal isn’t dead. Fannie Mae’s standard cash-out refinance path normally requires at least 6 months on title before a cash-out refinance is allowed, but that waiting period is waived entirely when the lender documents that the borrower was legally awarded the property through a divorce, separation, or dissolution of a domestic partnership.

What has to be in writing before closing

A limited cash-out buyout isn’t automatic just because a divorce happened. All parties must sign a written agreement stating the terms of the property transfer and exactly how the refinance proceeds will be used. The spouse acquiring sole ownership cannot receive any of the loan proceeds beyond what’s needed to pay off the departing spouse, and documentation must confirm the 12 months of joint ownership unless the property was recently inherited.

A worked example: buying out a $180,000 share

Renata and Carlos’s house appraised at $460,000 with an existing mortgage balance of $100,000, leaving $360,000 in combined equity, split evenly at $180,000 each under their settlement. Renata’s new loan needed to cover both the $100,000 payoff and the $180,000 buyout, for a total of $280,000.

Divided by the $460,000 appraised value, that’s a 60.9% loan-to-value ratio, well inside Fannie Mae’s limited cash-out LTV limits and far under the $832,750 conforming loan limit for most of the country in 2026. Because she and Carlos had been on title together for 14 months, the refinance priced as a limited cash-out loan rather than a standard cash-out one. For what happens to the mortgage in the weeks right after filing, before any refinance is even possible, see this companion article on who pays the mortgage in the first 90 days.

Frequently asked questions

Does the 12-month clock start at the divorce filing or at the original home purchase?

It starts at the original date the property became jointly owned, which is usually the purchase closing date, not the divorce filing date. Most couples who bought the home together years before the divorce clear this test easily; the test mainly affects couples who purchased or added a spouse to title recently.

Can the departing spouse keep their name on the mortgage after the buyout?

No. The entire point of the buyout refinance is to replace the existing joint mortgage with a new loan in the remaining spouse’s name only, releasing the departing spouse from mortgage liability. The departing spouse’s name coming off title is typically handled separately through a quitclaim deed at or around closing.

What if the home’s value doesn’t support a big enough loan to cover the buyout?

If the new loan amount needed exceeds what the home’s appraised value and the borrower’s qualifying income can support, the buyout may need to be restructured, for example paid over time outside the mortgage, or the settlement itself may need to be renegotiated. A lender can tell you the maximum loan amount before the settlement is finalized.

Does this 12-month rule apply to Freddie Mac loans the same way?

Freddie Mac has its own, similarly structured allowance for refinances that buy out a co-owner’s interest following a divorce or separation, though the specific requirements are set in its own Seller/Servicer Guide. Ask your lender which investor’s guidelines apply to your specific loan before assuming the Fannie Mae rule above controls.

Is the buyout amount itself taxable to the spouse receiving it?

A property transfer between divorcing spouses incident to the divorce is generally not a taxable event under federal tax law, but the specifics depend on your settlement’s structure and timing. Confirm the tax treatment of your specific buyout with a tax professional before finalizing the settlement terms.