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Divorce is rarely easy and often means a lot of difficult decisions. One of the most important decisions is what to do about your housing.
That's where we can help. Often clients tell us what a comfort it is simply to get straightforward specific information and answers. Once they know how a divorce affects their mortgage, their house and taxes; critical decisions are easier. As a neutral third party we help them make logical, rather than emotional, decisions.
Probably the first decision is whether you want to continue living in the house. Will that familiar house bring you comfort and emotional security? Or are you ready to sell and move to a new place that offers a new start? Only you can answer those questions.
Just as important, you must determine what you can afford. Can you manage the old house on your new budget? Is refinancing possible? Or, is it better to sell and buy? How much house can you buy on your new budget?
Again, we make it our business to help you answer these questions. Our council and market information can help you avoid costly mistakes and smooth your housing decisions during transition.
Straight Talk About Your Housing Choices
Three Basic Options
Most divorced homeowners face three housing options:
- Sell the house and split the proceeds
Our appraisers can analyze your home's market value, then estimate, after selling expenses - how much the home sale will net.
Be careful not to assume there will be a 50/50 split of the sale proceeds. Your share will depend on the divorce settlement.
- Buy out your spouse's share of the home
The good news is your lender cannot "call the loan" when a property is transferred from one spouse to another due to divorce. The lender however, rarely if ever relieves the departing spouse of the obligations of the original mortgage contract, even though the spouse no longer owns part of the house. Often the key to this option is refinancing. Crunching your income numbers is the answer, and we can help. Remember, if you used two incomes to qualify for the original loan, refinancing on you own can be a stretch. If you can afford to keep up the mortgage payments, upkeep costs and also buy out your spouse, this may work.
If you are the spouse who is bought out, you have an opportunity to start over in a new place, possibly with cash in hand. But if the old loan is not refinanced, nearly all lenders will continue to insist that both co-signers are still liable for the mortgage. This liability may make it difficult for you to qualify for a new mortgage when you go to buy another home, even though the property settlement may say you are not responsible for payments.
- Retain joint ownership of the house for now, even though only one partner occupies it. This option leaves things pretty much alone for the present, and can work if both co-owners can co-operate together after the divorce - which poses its own challenges.
If you Decide To Sell
It's important to consider the benefits of an experienced realtor when selling a house as part of a divorce settlement. Both spouses need to co-operate to get the house sold, and that is where it is especially useful to have professionals co-ordinating preparations for sale as well as contract negotiations.
When a contract for sale is presented, both spouses should be available so both can participate in the negotiations and sign the purchase contract. If a joint meeting is impractical, a conference call may be necessary. We can refer you to professionals that will handle the settlement details to bring about a quick and worry-free sale.
What Can You Buy
Of course, if you decide to sell the family home you'll want to know what you can afford. You may be pleasantly surprised!
First we'll consider the equity you'll receive from the sale of your old house. Then we will take into account your income from all sources (including suite rent and support payments, subject to certain conditions). Next we calculate the payment your new budget will allow. Then we will consider the interest rate for the term that seems to best suit your needs and calculate the amount of mortgage that can be serviced with your budget.
Keep in mind that we are in the business of knowing the lending policies of many lenders (institutional and private), and this knowledge allows us to analyze your situation effectively, and present you with a summary of what options are available to you.
Steer Clear of Tax Traps
Whether you decide to stay put or sell, there are tax implications to examine.
Free Ride: In most situations the laws work in your favor regardless of what you do. There is no tax on gain from the sale of your principal residence.
Where one spouse continues to maintain an interest in the original family home while it is being lived in (rented or not) by the other, there may be tax consequences. In this case or in situations where the home is rented to a third party, you should consult with your tax advisor on income tax implications.
Back To Sellers Resources
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