Usually in a divorce, the marital residence is the most important asset that a couple must divide. To do so, you have several options. One of them is for one spouse to keep the house and for the other to take possession of most of the other assets. Likewise, the house can be sold and the profits split or one of the spouses can buy the other half of the house.
Part 1 of 2: Evaluate Available Options
Step 1. Analyze your mortgage documents
Before deciding to buy the other half of the house as a result of your divorce, you should know the exact balance owed on the mortgage. Also, you should know what the breakdown of the payment is and how much will go towards principal, interest, taxes and insurance.
- If you own less than 20% of the home, you may also have to pay for private mortgage insurance of between 0.25 and 2% per year.
- Contact the insurance company hired by the homeowner. You may receive discounts since, in addition to the house, you will insure several vehicles or you may have to pay a penalty because your spouse has a history of lawsuits. Since the insurance is part of your mortgage, a change in this could affect the respective payment.
Step 2. Gather information regarding your income and credits
The spouse who wants to keep the house must be realistic. Buying the other half of the house, which involves paying your spouse a lump sum for his share of the property and removing his name from the mortgage and deed, means that you will have to obtain a mortgage in your name. Typically, mortgage lenders use 28% of the borrower's gross income as a benchmark. You can get a free copy of your credit history from the top three credit reporting companies thanks to the Federal Fair Credit Reporting Act (FCRA).
The credit report obtained under the FCRA will not include your credit score. What matters is the report, in which you will verify if there are problems or errors in the information, so that you can correct them before requesting a refinance. On the other hand, there are several online tools that will help you calculate your credit score. Look for a tool that doesn't require you to provide information about your credit cards or sign up for a dubious credit monitoring service
Step 3. Request a home appraisal
Regardless of whether the housing market is volatile or slow, you must know the current market value of the home regardless of the mortgage. Tidy up the house and the entire property, as a solid appraisal will help you with refinancing.
Step 4. Research properties comparable to yours
The appraiser will look at the neighborhood's Comparative Market Analysis (CMA), but you won't hurt anyone by looking at it for yourself. You can find out which houses are similar to yours on the market, but the important thing is to ask what their selling price is. A real estate agent can get this report for you, or there are other tools online to estimate CMA in your area as well.
Step 5. Make a decision
Buying the other half of a home is risky and advantageous for both spouses. For those who keep the house, buying the other half means taking on the mortgage in full, but also reaping the benefits if the value of the house increases. For the spouse who gives up their share of the property, this means freeing themselves from the risk and burden of a mortgage and getting something concrete without worrying about the future of the housing market in that neighborhood.
- Equity is calculated as the home's appraised value minus the mortgage balance.
- If the house has been in your possession for less than five years, unless you have paid a significant down payment or live in a very active real estate market, you will be surprised how little equity you have. For example, if you financed a house of $ 250,000 in 30 years at a rate of 4.50%, after five years, you will have paid only $ 22,000 or 9% of your loan.
- Compare the terms of the current mortgage with yours. If interest rates have dropped, this might be a good time to seek a refinance. However, if the rates have increased, you will have to look for other alternatives instead of resorting to a new mortgage.
Step 6. Evaluate other assets and options
If obtaining a mortgage of your own could be difficult or too expensive, consider liquidating or negotiating other marital assets to pay for your spouse's share of the house.
- For example, if the equity is $ 22,000 and it is not a good time to get a refinance, then a loan of $ 11,000, a distribution from a savings account, or to give up $ 11,000 on the 401K pension plan from your spouse can substitute the cash payment for the other half of the house. In divorces that are conducted on good terms, the judge will seek fundamental fairness with respect to the property distribution agreement and will accept other more reasonable agreements.
- Consider entering into a shared ownership agreement in which one spouse occupies the home and assumes full payment of principal, interest, taxes, and insurance. However, if one of the parties defaults on the agreement, the other party will have to assume the mortgage or else they will lose the property.
- Shared ownership works well in amicable divorces where there are short-term goals, such as keeping the house so that teenage children can finish school or until the spouse who occupies the house completes his studies or his period of job training to improve your income level enough to apply for a mortgage of your own.
Part 2 of 2: Going through the purchase of the other half of the house
Step 1. Let the court set the terms for the purchase of the other half of the house
If your spouse contests the divorce or if communication is lost during the process, you can allow the court to establish the terms of the purchase and force your ex-husband or wife to comply with the transfer requirements of the documentation, the title of property and property per se.
It is best to make every effort to resolve this issue with your spouse, even if you must split the expenses and sit down with an attorney to reach an agreement regarding your property. The court's decision will not take into account personal feelings, market conditions, or future plans. The result could be a coercive order with end results that benefit neither party
Step 2. Learn about the laws regarding marital partnerships
If refinancing with a cash payment is the best option, you will need to schedule the new mortgage correctly. If you live in a state with partnership laws, refinancing can be difficult unless you wait for the divorce to be final.
If you must refinance immediately, consult with a real estate attorney about the ramifications of the partnership law related to the transaction. Unless this issue is handled correctly, the refinanced loan could be considered a joint debt, contrary to the purpose of the separation of assets
Step 3. Create a joint property agreement for a fixed period until the divorce is final
Both names will remain on the title and on the loan, but the house-occupying spouse assumes the payments and receives credit for any additional assets that arise during the term of the agreement.
Step 4. Decide on the best way to refinance
Assuming you have the income and credit to apply for a refinance, you will have several loan options to consider.
- A refinance with a conventional rate or period swaps the old mortgage for a new one. The balance of the old mortgage becomes the new loan amount. The problem with these types of loans is that you will have to find cash to pay your spouse for his share of the property.
- A cash-out refinance will allow you to finance a combination of your outstanding balance and equity, for which you will receive a cash payment. This type of loan requires a favorable loan-to-value ratio and strong credit. However, this loan may require you to make additional payments or the interest rate may be higher.
- If your ex-husband or wife is comfortable with their name remaining on the current mortgage, you can obtain a home loan in your name to increase the required cash payment. This is a good option if the existing mortgage has excellent terms and will pay off in less than three to five years.
Step 5. Transfer the property title
Once the divorce is final and the house payment is complete, the non-living spouse must sign a deed of resignation in favor of the person who will keep the house. You can find blank forms at most office supply stores, or a lawyer can write one for a reasonable cost. The deed should be filed with the county recorder's office as soon as possible. Generally, it will cost a minimum of $ 20 to do so.