DIVORCE & YOUR MORTGAGE
Ending a serious relationship can be draining, leaving you with questions. Don’t panic we can help!
When a married or common law couple goes through a divorce or separation, both individuals in the relationship have equal rights to the shared home. Without a court order both applicants are not allowed to rent, sell, or remortgage the home without consent from the spouse. If both applicants agree to leave the home, they are still obligated to pay the mortgage and any other property fees.
The Spousal Buyout
A mortgage is a financial obligation that is signed for at the time of approval, and the lender funding the mortgage will want to ensure everything is properly handed before any applicants leave the home.
Let’s explore the steps of a Spousal buyout to determine if it is the best option for the situation:
Step 1- Ensure the relationship is over
You want to make sure the relationship is completely over before separating assets. As it can be a long, relentless process-Ensure the decision is final.
Step 2-Negotiate a Legally Binding Separation Agreement
A separation agreement outlines multiple factors such as handing financial obligations, child support, who gets custody of the children, and spousal support if the relationship is over. A separation is different from a divorce, with divorce meaning the marriage is legally terminated. A separation must come before a divorce and a legal agreement is required before a buyout can occur. One thing to always keep in mind is, without a written, and signed separation agreement, the partners are not legally separated.
Step 3-Deterime If one Partner wants to keep the home
When both parties of the separation want to sell the home and split the proceeds, no buy out is required, and the process is straight forward. But if one party would like to keep the home then the situation can get complex and multiple options can be presented. Determining how to divide the assets can be emotionally draining, with lots of decisions to be made.
When a long term relationship is ending, the mortgage can be handled in one of four ways depending on the agreement:
No buyout- Both parties agree to sell the home, pay off the mortgage and other fees, then slit the proceeds. No buyout is required!
If one partner stays, the other partner goes, no cash needed-The departing partner will need to request a release of covenant from the lender. The individual that decides to stay in the home will need to requalify for the mortgage entirely on their own, which may cause lender processing fee and possibly legal fees.
One Partner Stays, One Partner Goes, Cash Required- Known as a spousal buyout, this process requires one partner to purchase the other partner’s half of the property, but keep in mind the second half includes any equity in the house. The partner that chooses to leave will get the cash, be discharged from the mortgage, and go on their way. The partner that is staying in the house will need to requalify for the mortgage fully on their own and will receive the cash to complete the spousal buyout.
Can’t Sell, Refinance & No equity in the home- When there is no equity in the house, rather called negative equity, both parties owe more against the house then what its worth. In this situation, both parties would have to come up with the remaining amount owing or wait till there is enough equity in the house to sell. If both parties agree, a great idea for the home could be to rent out the property while both parties wait to sell. Profits from the sale can be used to pay for the mortgage, property taxes and utilities, and additional profit can be split between both parties.
Under traditional re-finance rules you can only access 80% of the home's value.
However, under the Spousal Buyout Program, you can access up to 95% of the value of the home.
Every person’s situation is different and different steps may need to be taken to complete the process!