The divorce process can make real estate even more complicated. Our goal is to provide the answers to common questions when you are going through Divorce.
Such as how does a home buyout work in a divorce and, what is my house worth?
What happens to a mortgage in a divorce?
A refinance would be a clean way to solve the problem and leave only one spouse as a borrower on the loan. The only person who will be responsible for payment after the refinance closes is the one whose name is on the mortgage. Then, you could remove the name of the person who will not make mortgage payments from the title.
Doing this in the "correct order" and making sure that the person staying in the home is able to qualify by themselves is important. We don't want someone staying in the home to be "house poor" even if they are able to make the payments.
How much accessible equity is in the home?
This is not as straightforward as you might think, but we have the knowledge and experience to help. To help you get an idea you can try out, our Divorce Buyout Calculator enter in a few numbers to get a starting point of how much equity is in your home. We can walk you through this process and get you prequalify for the mortgage cash out.
There are several options that spouses need to consider when deciding on what to do with the family house. Then you can know for sure the answer to the question we get asked all the time, Who Gets the House in a Divorce in Texas?
One of the most powerful tools to help "buy out" your spouse is what is called an Owelty Lien.
Use our Divorce Buyout calculator to help determine what your situation looks like after fees, so you can see how much equity remains to split for all three scenarios and determine which option is best for you.
A buy-out of equity involves buying out the existing legal owner of a piece of real estate (your spouse). Refinancing the existing mortgage is the most common way to acquire equity ownership in the marital home from an ex-spouse.
Before you go to mediation and write up the divorce buyout agreement form, you can use this calculator to determine how much equity there is in the house.
Knowing your options will help you make an informed decision because we believe knowledge is power.
Thinking about buying out your spouse?
What is a buy-out? A buy-out is when one owner of a property pays the other owner's share of the property's equity so that the co-owner can be released from the mortgage and removed from the deed as owner.
It is not uncommon for clients to want to keep their home for several reasons, such as not wanting to lose it to their ex, being emotionally attached to it, or for the children. If you choose to buy out the other spouse and stay in the house, you should know that it comes with some risks, including ones that you may regret in the future.
Refinance vs a Divorce buyout?
Refinancing is usually either a rate/term refinance or a cash-out refinance. Rate/Term refinances typically offer better terms in terms of lower interest rates and more equity. On the other hand, a cash-out refinance typically carries a higher interest rate and only allows the borrower to access up to 80% of the home's value, which could cause a problem when the goal of the refinance is to actually access the equity.
A divorce settlement agreement needs to be written (the Correct) in a way that allows the divorcing borrower to refinance as an Equity Buy-Out. This way divorced borrowers can access more equity in their homes without having to undergo higher pricing adjustments.
We can even help access 95% of your home equity in some cases!
Decide which party should buy out the other
One of you may be able to qualify for a loan better than the other. A borrower whose income can be verified and has good credit will get a better rate than one whose income cannot be verified.
In the case of a single-income household, the mortgage lender may not approve the new loan if you do not make enough to pay the mortgage yourself. It may be necessary to sell your marital home unless your income increases quickly.
Alimony and child support can be used as verifiable income, but it most have been received for 6 months and continue on for 3 years.
If you own a cash business or recently were self-employed, this income typically cannot be verified to qualify for a mortgage. Any self-employed job must have 2 years of history and usually that income earned is an average of those years. Both you and your spouse should speak to a mortgage professional about your ability to qualify.
It is possible to divide property and assets in an equitable manner. However, if one of you is unable to qualify, or only qualifies for a significantly higher rate, that should be negotiated. You may choose to divide assets through other means if there is a substantial difference in what you qualify for, or simply sell the home and divide the proceeds.
Prior to agreeing to a buyout, you need accurate information regarding the types and costs of loans that would be available to either of you.
Maintain Credit, Your Credit Score
Your credit score may no longer qualify you for a refinance if it has fallen since you took out your current mortgage loan. You may be able to overcome a low credit score by focusing on your score and picking the right loan program for you. Rebuilding credit history over time is often the only "fix" for a low credit score.
Most people who go through a divorce find it difficult to pay their bills. Temporary support payments may not be coming in on time; you and your spouse may have had a disagreement about who will be responsible for paying which bills; your income may not stretch to support two households, or you may have moved out and have not seen the bills. When going through a divorce, many people find it difficult to maintain perfect credit for various reasons.
In order to make smart financial decisions, you need to understand the challenges associated with refinancing to buy your spouse out. Make sure that the mortgage professional you choose understands what you're going through and what you need to accomplish. Divorce is a difficult time, emotionally and financially. More than anything, you need accurate, reliable information so you can get a good rate, buy out your ex, and move on with your life. This divorce does not have to define you. This too shall pass.
Still have questions?
Schedule a free 30-minute call with us and we can help you walk through your specific situation, as we know each person's circumstance is different.
Learn about the 5 Biggest Real Estate Mistakes in Divorce
Read more or our New Beginnings Blog post
Do you have questions about how divorce may impact your ability to obtain mortgage financing?
Want to Buyout your spouse?
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