Divorce and your Home
There are many questions you might be asking at this time, particularly surrounding your home. We are here to help. Let’s first consider some of the basics.
I think I want to stay in my home…what do I need to keep in mind?
First, take into consideration the size of the home, utilities, payments and family needs. Does staying in the home truly make sense? You will likely now be entirely responsible for the mortgage payment, property taxes, insurance, upkeep, and other related bills. Your household income may decrease, and your overall expenses may increase if you are subject to a court order for support. It is important that you consider what your actual expenses will be while keeping and maintaining the home on your own.
My spouse is entitled to share in the equity we have in our home…how is this handled?
The value of the home may need to be determined by an appraiser – call us if you need a recommendation and referral. The appraised value less the eventual costs of selling (commissions, mortgages and seller closing costs) equals the equity to be split between the parties. Please contact your lawyer for specific advice as to how net family property will be divided in your circumstance. If you have not yet retained counsel, we may be able to refer you.
With the divorce, your spouse may put a designation on the property or there may be a court ordered mandate for distribution of the equity, which may include interest on that amount. This means that you will likely have a specified amount of time to obtain the funds needed to give the ex-spouse his/her portion of the equity. This can be done by cashing out the equity in the home with a new mortgage, selling the home or by using other assets you have to “buy out” your spouse's stake in the home.
If you choose to stay in the home, you have two financing options to pay your ex-spouse. You can either refinance your mortgage to take cash out, or you can obtain a new second mortgage. This is where you can benefit from the advice of a trusted mortgage professional.
Even though you may now be qualifying for the loan without a spouse’s income – with your own good credit and income, you can usually qualify on your own. Often, child support and alimony are viewed as stable income, with the proper documentation. The mortgage lender may require a copy of your separation agreement or court order.
What if I am the one leaving the home?
It is important to know that even though the home is being retained by your spouse, you are still obligated for this debt in the eyes of the mortgage company. Many people assume that by registering a Transfer/Deed removing themselves from the title, they are no longer responsible for the mortgage. A Transfer/Deed eliminates your name from the title of the property, but not from the mortgage loan. Consider requesting a letter of release from the mortgage holder at the earliest possible stage.
What about credit cards?
Keep in mind that shared credit cards may or may not be the responsibility of all parties that use them. If one credit card borrower increases the balance, both borrowers are still responsible for payment. Credit card balances and repayment history will be reflected on the credit bureau report of the party(ies) that have guaranteed them, which can be taken into consideration upon qualifying for a mortgage.
How might this scenario impact my credit? What can I do?
Unfortunately for many, divorce is a time of great financial hardship and credit challenges. Because you may be responsible for the mortgage until it is paid in full or refinanced, it is imperative that the payments remain current. One possibility for removing your name from the obligation is to contact the company which currently holds your mortgage, and ask to be released. This process will leave the existing loan in place, but would relieve the non-occupying spouse of their obligation on the loan. Give us a call, and we can explain more about this process, or help you determine if a refinance may make more sense instead.
Will I be able to buy another home while I am still listed on the old mortgage?
Although it is difficult and not usually advised to purchase another home until your separation agreement is in place or your divorce is final, we are happy to look over how you expect the financial situation to be finalized, and help you get ideas as to what you will qualify for. Remember that in most situations, child support and alimony must be properly documented in order to use them as income for qualifying. Also, keep in mind that as long as your name is associated with the mortgage of your ex-spouse, any late payment issues on that mortgage can affect your ability to secure another mortgage. This is due to the fact that the mortgage is still a joint liability in the eyes of the credit bureaus until you are removed via a refinance, sale or other method as described above.
What if I want to purchase another home before the divorce is final?
This may be possible, but be aware that your spouse may have an interest in your current property, and it will need to be handled by your lawyer with a Transfer/Deed being given from one spouse to the other. You will also have to qualify with the full debt from the current home because there would not yet be a release from the existing mortgage. Be very careful with this situation, especially as the financial situation you expect may not be the final result once the separation agreement or a divorce judgment is obtained.
Taking the time to talk with us during this process and before you decide to start looking at a new home can help eliminate many of the concerns or questions that often surface in these situations. We understand that this may be a very difficult time and you have many decisions to make. We can provide you with a free financial consultation, credit check, and a mortgage strategy review – so that you have the answers and information you need to make good decisions.
We’ll help you sort out the options and strategies and do our part to assist you at this time… and down the road. We understand that it’s not just a house, it’s your home.