Although the divorce rate in America is dropping, it is still between a staggering 40 to 50 percent. With just over 64% of Americans owning a home, it’s likely that many of them will be faced with the question of what to do with the home when they split. Depending on your financial health and needs, there are many mortgage options you can explore in this situation.
Option A: Refinance your mortgage
If one spouse wants to keep the home, and the other wants to move on, refinancing the mortgage and leaving one person’s name on the loan is probably your easiest option. In this scenario, the person left on the loan is solely responsible for making payments.
If you have built equity in the home, a cash-out refinance pays out the portion of this equity due to the departing spouse.
There are factors that could prevent this option from working for you. If the remaining spouse does not have the income or credit necessary to be approved for the loan, this will not be an option for them. Equity also is a factor. If the home was purchased recently, it may not have enough equity to refinance. In this instance, there are specific options available to you. Contact me to talk about other ways that you can remove your spouse from your mortgage loan if your home is in a low equity position.
Option B: Pay off your spouse’s share
In Alabama, it is possible for one spouse to keep the home and pay the departing spouse their share of equity. If there’s equity in the home, a home equity loan may be right for you. In this instance, you are adding a 2nd loan to the existing one, so there is no refinancing of the original mortgage. This typically leaves both of you on the note, and mortgage. This is not a good situation as the departing spouse will have this debt reporting on his or her credit as well affecting their debt to income when he or she goes to purchase something.
If there’s little or no equity, you could take out a personal loan to buy out your spouse. Whether or not this is possible will depend on your income and credit history.
Option C: Sell the home
While this is often an emotional choice, selling the home may ultimately give you a clean break. When the home sells, you split the profits and can move on. In our current market environment with low inventory of homes available this may prove to be this best choice.
In some divorces, however, this might not be true. If you have children and a battle over custody to consider, keeping the home could be wise. If you have low equity or the real estate market is weak at the time of your divorce, you could face a financial loss if you sell. If you’re not sure if it’s wise to sell, contact me today to discuss your options.
Option D: Keep the home
If there are no other paths that make sense for you and your family, you could choose to keep the mortgage. In this instance, both parties remain on the loan, and the divorce agreement will outline each party’s monthly payments. It is not uncommon for one spouse to pay for the home while the other lives there with the children, but sometimes both spouses pay a fair share. The judge can rule that one spouse or the other is to pay, but if both of you are on the note that is the contract to pay.
You should consider the risks involved in this choice, however. If your divorce is not amicable, this could become problematic. Because you are on a loan together, your spouse’s payment history will affect your credit. Whether you are making payments or not, the lender holds you responsible for any missed payments your spouse may incur.
Where to start?
Like a home purchase, a divorce should be well thought out, and planned. It’s an emotional roller coaster, and if not planned out it could If you are considering a divorce, I can help you make the wisest decision for you and your family. Call, text, or email me today to learn about your options.