Since most couples have a joint mortgage – one where both names are on the mortgage and title of the home – when separation or divorce proceedings get underway, many wonder what will happen with the home.
When the marriage comes to an end, there are two obvious options concerning the home: 1) sell the property and split the proceeds according to your agreement and go your separate ways; or 2) one person buys the other party out of the mortgage and the title of the property.
The first option is a straight-forward transaction where you put the house up for sale, sell and split the proceeds. The second option, however, is slightly more complicated.
The decision between the options is a personal one borne out of the specific circumstances of the parties involved. Perhaps there are young kids involved that need to stay in the house, the market is down and there will be a loss on the property that neither party can afford, one party can afford to buy the other party out, etc.
Once the decision is made, how do you go about buying the other person out of a mortgage? Well, essentially, you’re refinancing your mortgage using a single income (the person who’s buying the other party out of the house) and qualification, versus the original purchase, which was based on joint income and qualification.
If you’re the one buying your partner out, the first step is to ensure that you can afford the mortgage payments.
This is imperative because the lender will ask for proof that you’re capable of covering the mortgage in order for you to apply on your own. In addition to covering the mortgage amount, you’ll have to come up with whatever dollar amount you have agreed on to buy the other partner out. This may come out of the equity in your home if it’s sufficient.
In essence, if you can afford the mortgage on your own, the most common means of buying out your partner post-separation and transferring title out of the joint name and into your name, is to refinance. I can help you through each step of this process. And although the maximum refinance on a home is 80% of the appraised value, given the unique circumstances surrounding separation, you can often refinance up to 95% of your home’s value.
If you’re not in a financial position to buy your ex-partner out of the house, and you agree to both stay on title and have payment arrangements, there’s one warning to be taken very seriously – just because one person is responsible for the payments (even with a court order), if the mortgage goes into default, both parties on the mortgage will be affected.
The most important piece of advice when dealing with a mortgage during a separation is to become informed. Know your options, talk to professionals about your options, and make an informed decision regarding your home and mortgage.
As always, if you have any questions about the information above or your mortgage in general, I’m here to help!
Angela Calla 604-802-3983