Wondering what to do with your house if you’re getting divorced? Let me break down what your options are in different situations:
In the fairytale books, the prince and princess live happily ever after. Unfortunately, that isn’t real life in far too many cases, and people decide to go their separate ways. And when you already own a property, it can create some complications. So, let’s go through a couple of the different options.
The easiest option is you both sell the house, you split the profit. Hopefully there’s a profit, and you go your separate ways. If there’s a loss, that’s a problem because you’re going to have to come up with some cash to cover any shortfall on the selling price versus your realtor price or your realtor commissions and what you owe the bank, et cetera.
If one of the parties decides to keep the property, then you’ll need a separation agreement that outlines how much the other partner is going to be paid, and the person who’s keeping the property can potentially borrow up to 95% of the value of the home and minimize how much cash they need to come up with to do that buyout.
If it’s an older couple with more equity in the property, you can potentially borrow up to 80% of the value. You do it as a refinance to avoid mortgage insurance premiums. And, again, you would pay out your ex-spouse.
Anytime there are children involved, lenders are going to want to have a separation agreement because that separation agreement outlines child support payments, and potentially spousal support payments. Those support payments are treated as a liability if you’re the person who has to make the payments. So it’s no different than, say, a car payment.
If you’re the person receiving child support, you can potentially use that income to help you qualify. It depends on how old your kids are, though. So typically, if they’re 12 and under, you can use the income to help qualify, and then you don’t want, or lenders don’t want to see that child support income, you know, representing too much of a percentage of your overall income. So as an example, if you have a part-time job and your support payments are like 50% or 75% of your household income, lenders aren’t going to like that, and they may decline the file. If it’s a smaller percentage, you know, 15%, 20%, you might be okay.
Hope that helps explain some of the different scenarios that may come up! Reach out to me if you have questions.
I have a great video on if you should refinance your mortgage to pay off debt too.
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’ll be your trusted partner who will help you get the right mortgage for your family home or Investment property. I’m Jason Scott, and I’ll be your Mortgage Broker Edmonton.