In the United States, a divorce occurs every 13 seconds. When you add shared homeownership to divorce, things can get even more complicated.
Homeowners going through a divorce face a variety of difficult matters. Your home is typically the largest shared asset, from both a financial standpoint as well as a sentimental one.
The decisions made concerning the home are crucial to long-term financial well-being. Knowing your options as you prepare for separation can make the notion of divorce easier to manage. Here are a few recommended options you may want to consider.
Selling The Home
Selling the home may offer a clean cut solution for both parties involved.
If neither party wants to stay in the home, or if neither can afford to stay in the home on their own, selling if often the best option.
A real estate professional can help determine the sales price. They can also assist to preparing the home for sale, listing and marketing the property effectively, and help with offer negotiations.
There are important considerations prior to listing the home regarding the costs that will occur prior to dividing any proceeds from the sale.
For example, the mortgage, second mortgage, home equity line of credit, brokerage fees and possibly closing costs paid on behalf of the buyer must all be paid. How this is paid needs to be decided between the divorcing parties.
Another important factor to consider is how long it will take for the home to sell. While the home is listed for sale, mortgage payments will still need to be made, as well taxes, insurance and potential maintenance fees.
Also, a long, drawn out home sale will just make the entire process more difficult and frustrating for both sides.
You will need to factor in these carrying costs and how they will be shared prior to listing the home for sale.
Refinancing Your Home
Another common tactic divorcing couples often use is refinancing the mortgage into one spouse’s name.
In this scenario, the spouse taking the house typically pays off the other spouse’s equity share through a refinance. This is done through a cash-out refinance.
Consider the following scenario as an example:
- A couple purchases a home together a few years ago for $250,000.
- The spouse leaving the property originally contributed $10,000 towards the down payment.
- Since purchasing the home, the property has appreciated by $30,000.
- The spouse staying in the home refinances, cashes out $25,000 to reimburse the departing spouse for their original down payment contribution, as well as half of the equity that’s currently in the home.
Through the process of this refinance, the other spouse is removed. This is sometimes further settled through a quit-claim deed so that there’s no possibility of future mortgage obligations.
It is important to consider the potential challenges that are involved with refinancing, and staying in the home without the help of the departing spouse.
For example, when you originally purchased the home, you may have had two incomes and the help of a stronger, joint credit rating with your spouse.
Not only will you as the remaining spouse need to qualify on your own with regard to income and credit, it’s important to remember the additional costs of homeownership that you’ll now be swinging on your own.
- Property taxes
- Homeowners insurance
- Homeowners association fees
- Utility bills
- Ongoing repairs and maintenance
A noteworthy matter to remember is that when a couple files for divorce, this becomes a matter of public record. You will not be able to refinance during the divorce proceeding.
Applications must be dated after the divorce is recorded. As such, it’s wise to consider your options as far in advance as possible prior to the divorce.
Some couples may even decide to refinance before filing separation paperwork.
Be sure to speak with a mortgage lender ahead of time about whether or not you will qualify for the mortgage on your own.
Renting Your Home Out
Some divorcing couples may decide to rent out the home.
A longer lease term can be ideal for some couples. This also gives the divorcing couple time to wait until the housing market is ideal for selling (if it isn’t already in their area).
Another possibility to consider is renting out the home on a month-to-month basis as you figure out your options.
Renters looking for short-term leases are typically prepared to pay more for a month-to-month term. This could help offset the mortgage payment, or earn some extra cash as you go through your divorce proceedings.
Another upside to a month-to-month tenancy is that you don’t have to worry about scaring off potential buyers due to having to evict a tenant.
Keeping The Bigger Picture in Mind
A divorce will be challenging enough even if there are no children or property involved.
If your goal is to try and qualify for a mortgage while being tied to a previous property, it’s in your best interest to have an open and amicable line of communication with your soon to be ex-spouse.This can help you complete a less stressful mortgage transaction on your own.
It is also imperative to check and protect your credit during the divorce proceedings. A poor payment history on the part of one spouse during a marriage, and even more so during a divorce, can significantly impact both parties.
Make sure your credit is reporting accurately, and reflects the debts that are yours. Bear in mind that although your divorce decree may indicate you are no longer responsible for certain financial obligations, that doesn’t automatically mean your name has been removed.
Be sure and contact your lender and creditors about your situation. They can be helpful in documenting your file appropriately, as well as offering their guidelines for how to go about removing your name from accounts.
Knowing Your Mortgage Options When Divorcing
Regrettably, many marriages don’t last as long as the life of a mortgage.
Fortunately, the end of your marriage doesn’t have to mean the end of your homeownership goals. Divorces are never easy, but knowing your mortgage options when considering a divorce can make things less stressful, and you could come out ready to purchase a home on your own.