For most couples, their home is their most valuable asset. If you are divorcing, you are probably struggling with what to do with the house and wondering if it would be possible for one spouse to retain it. I have spent years helping individuals understand the finances of their divorce and the complex decisions that need to be addressed. When one spouse wants to keep the home, it will need to be part of the larger divorce negotiations. If you are considering retaining the marital home, there are several financial considerations that we can help you assess including:
- Do you, as a couple, have sufficient other assets for one of you to keep the home and buy out the other spouse?
- Will the spouse keeping the house be able to refinance the mortgage in just his or her name?
- Will he or she be able to afford the home on their own going forward?
Before I explore these options, I want to caution you to protect yourself during this process. Proceed only with the guidance of your divorce attorney and, ideally, a mortgage professional who has a good understanding of divorce lending guidelines which can be quite complicated. Giving up rights, agreeing to refinance without knowing if you will be approved, or taking ownership of the house too soon could cause significant and severe complications if your divorce negotiations become contentious.
Question 1: Do you have the assets to buy your spouse out of the home?
Typically, when one spouse wants to keep the house the other will be compensated with other assets for their share of the equity in the home. Other assets can include another property, cash, a retirement fund such as a 401k, or an investment account. We can discuss options available to you based on your financial picture and then discuss the best plans with your divorce attorney.
Question 2: Will you be able to refinance?
If one spouse wants to keep the family home, refinancing is almost always necessary in order to remove the other spouse from the mortgage obligation on a house they will no longer own. Depending on the particulars of your situation, refinancing can help pull equity out of the house to pay off the spouse not keeping the house and to remove his or her name from the mortgage.
However, a refinance can often be a complex process. A spouse refinancing a mortgage in just their name needs to have sufficient qualified income from a job, alimony, child support, or, as is often the case, a combination of all of these income sources with several confounding factors including:
- In general, to count as qualified income alimony and child support must have already been received consistently for the last 6 months and must continue for at least another 36 months after applying for the mortgage or after signing the note, depending on the type of mortgage.
- Your other debts (student loans, car loans, and credit card debt) may create a problem with your debt-to-income ratio.
- Current real estate market conditions and interest rates could impact a lender’s decision.
- If your credit score is low, you might not qualify for the lowest interest rates or you might be required to make a larger down-payment or you may need a co-signer. If it’s too low, you may not qualify at all.
Question 3: Will you be able to afford the home on your own?
You need to make sure you are going to be able to maintain the property. What happens if the furnace or roof needs to be repaired or replaced? How will you pay for that?
In order to answer these questions, you should have an honest discussion with yourself and/or your financial advisor about your budget after your divorce and include an honest look at the income, assets, and debts you will have on hand. You not only have to be prepared to independently handle the regular house expenses (mortgage payment, utilities, taxes) but have money available for upkeep and unexpected maintenance.
Making a Difficult Situation Easier
At Next Act Properties, we have real estate solutions that can help you at any point before, during, or after your divorce. We have extensive experience and a network of mortgage experts throughout the country who have specialized training and experience with refinancing in the context of divorce and will help you determine the best course of action for your particular situation. And if your home is located in Florida or Colorado, our sister company, Next Act Mortgages, LLC, is a licensed mortgage broker (NMLS #2123505) in those states and can help you directly.
Reach out to us here at Next Act Properties to see how we can help you with your refinancing or other real estate needs.