DIVORCE AND THE HOME
What You Need to Know About:
The Mortgage, your credit and Your Home
If you need to refinance your home to remove a spouse or release equity please complete the "Quick Start" form below or call 866-752-8322. We can help.
The material contained in this article is for information only. It is not intended to replace individualized legal advice. We strongly recommended you seek professional legal counsel for your legal issues.
Avoid costly mistakes...
Deciding to separate a marriage is a very hard and difficult time. An unfortunately aspect of a divorce is the splitting of your combined assets. This includes your home.
By getting unbiased information on options about your home it will make vital decisions during this stressful time easier.
First you must to decide who if anyone wants to live in the house. Many times neither party wishes to stay in the home due unpleasant memories. Other times, there may not any choice on which party will stay at the house.
This report is here to help you understand what your decision will mean to you financially and where you will live. Can you afford to move? Will you have to refinance? If you do move what can you afford?
Here are your 6 fundamental choices on what to do with your property
1. Sell the house. Split the profits
2. Buy the house from your spouse.
3. Sell your part of the house to your spouse.
4. Have a joint ownership.
5. Have one spouse refinance the home in his/her own name.
6. If equity is required to be paid out create an Owelty Deed.
It is critical to know what these 6 choices mean
1. Sell the House Now and Split the Profits.
The number one goal in this situation is to capitalize your home's resale price. Consider your net profits carefully, e.g., your profit after selling costs. Remember that in the end the profits may not be equally divided. Factors that may influence the split include the terms of your settlement, the original source of the down payment, and the property laws in your area.
2. Buying out your spouse.
Consider the new income of your household. Are you dropping from two salaries to one? Are you able to afford the monthly mortgage payment? If you wish to maintain the house as your primary residence, these factors must be addressed. If the original mortgage was qualified with dual incomes, then you may face challenges refinancing on your own.
3. Being bought out by your spouse.
This a great opportunity for a new start with money in your wallet!
One important caution, however: unless your existing home loan is refinanced, you will be considered libel for the mortgage, even though you are not the legal owner. This may pose a barrier in your eligibility for a new loan if you decide to make another major purchase, such as a new home.
4. You and your spouse retain joint ownership.
You may choose to delay the decision regarding possession of the home for a time, with one or the other of you remaining as a resident. This poses no short-term financial worries; however, be conscious of the tax situation. From the original time of the divorce to the final disposition of the home, the taxes on the home may change.
5. Have one spouse refinance the home in his/her own name.
If one spouse is to keep the house after divorce, insist that your soon-to-be-ex obtain new financing in his/her own name. You just can't call up the mortgage company and say, "Hey, I'm getting a divorced, can you take my spouse off the loan?" Your lender is going to insist on having your ex go through the formal process to qualify. Do not let the gavel sound on your divorce papers before the house has been through the refinancing process. Having your spouse show you loan approval papers is not enough; last minute glitches that prevent loans from closing occur every day. (Good Credit is Sexy 2004 pg 128)
6. If equity is required to be paid out you may need to create an Owelty Deed.
The Owelty Deed is used when equity is required to be paid out via the divorce and you wish to avoid the Texas Cash Out Guidelines of the 80% LTV rule when not enough equity exist in the home per Texas Home Equity Guidelines and you exceed the 80% LTV rule. You'll need to discuss this with your Divorce Attorney on how to create the Owelty Deed and then call us to complete the refinance.
IF YOU DECIDE TO SELL
If and when the choice is made to put your home up for sale, an expert in the area of home sales can be invaluable in helping your maximize your profit. Input from both spouses is essential, regardless of differences, and they should both be represented when an agreement is drawn up. Also, all parties should read and sign the agreement, and continue to be participative in the negotiation process.
If selling or refinancing isn't option
This is the worst possibe option. Try to avoid it at all cost. If moving out of your joint home is going to cause hardship to your ex (and/or kids), and he/she is unable to refinance the home on his/her own, here are some things you can do to protect yourself:
- Don't take your name off the title. If you take your name off the title (using a quit claim deed), you are removing ownership but not loan responsibility, a very dangerous situation. This also means that you will not be able to split the equity in the home at the present time.
- Place a limit on how long your ex can stay in the home before it will be sold or refinanced.
- Notify the mortgage company of your change of address and have all coupon booklets and statements sent to your new address (also see if you can get your ex to mail payments to you). At the very least, inform the lender that you wish to be notified if the payments get in arrears. In this way, if your ex is late on payments, you will be notified and have a chance to make up payments. (Good Credit is Sexy 2004 pg 128)
YOUR NEXT HOME PURCHACE
In this situation also a home sales expert can be invaluable in helping to sort out your needs. For example, what price range is reasonable based on the profits from your home sale? What are your new space, use and location needs? Keep your first priority of getting what you NEED and WANT to suit your new situation.