When getting divorced distributing the assets appropriately can be one of the most painful steps of the divorce. Especially when it comes to real estate.
This is the perspective from a loan officer. Make sure to seek the also seek the advice directly from your divorce attorney regarding these issues.
Important Issues And Factors To Talk About
- Separation Of Equity
- Existing Joint Mortgages
- Buying Another Home
Real Estate Isn’t Liquid
The biggest problem with dividing real estate assets when getting is that they aren’t liquid. If you have a large amount of cash in the bank and you need to settle with your spouse you can just write them a check. But with a house you have to sell it and don’t forget about paying off that mortgage.
Oh and what if the house is upside down? Who is going to bring the cash to close and how are you going to get the mortgage out of your name so you can move on with your life?
#1 The Separation Of Equity
So let’s say you are getting divorced and you want to get half of the equity that is left in the house. How do you get it and how much do you get?
Ways To Separate Equity
- Sell Property
- Cash Out Refinance
- Home Equity Line Of Credit
- Write A Check
The first thing you need to do is come to an agreement on how much equity is left in the house. You determine that by taking the home value minus any outstanding mortgages on the house then you have your equity.
Sounds easy right? Get ready because it’s not.
But there is always an argument over the home value because one person wants it higher and the other wants it lower. So if you can’t come to a mutual agreement on the home value then you will need to order an appraisal from an uninterested third party. That will run you $300-500 depending on type of property and location in the country.
Then you have to determine how you will pull the equity out.
Sell The Property
You could sell the property. If you do this then you will pay real estate commissions out of your portion of equity so be sure to consider that. If the house is upside down then when you sell you will likely “owe” money via cash to close and you will get “zero” equity. This often a great option because now nobody owns the property and any mortgages on it that may have been held jointly will be paid off and closed.
Do A Cash Out Refinance
In this case whoever is going to keep the home will apply to refinance their first mortgage. They will get a new loan for a larger amount and to get cash at the closing table that they can give to the spouse as their portion of equity.
This is an option if the mortgage is still in good standing, one person wants to remain in the home and there is real equity still left in the home.
Get A Home Equity Line Of Credit
A HELOC or home equity line of credit is a nice and easy option if it fits your needs. If you have some equity in the home you can get a HELOC to access just the right amount in a bite sized amount to pay the other person their equity.
Also in this case the person remaining in the home would need to qualify for a HELOC and have equity in the home.
Just Write A Check
If the person keeping the house has enough liquid assets then they may just write a check to the spouse so they can keep the house. They would make the check for half of the equity they agreed upon as part of the divorce settlement.
#2 Existing Joint Mortgages
If you own a house with your spouse odds are you have a mortgage in your name that will linger on your credit report after the divorce is done. You will want to do your best to keep that loan on time.
Ways To Take Name Off Mortgage
- Sell The House
- Pay Off The Loan
- Assumable Mortgage
We see mortgage delinquencies all the time when a divorce is happening just out of spite to the other person. If that loan goes late the odds of refinancing that debt out of your name anytime soon are near impossible. The bottom line is that if your name is still on that loan it’s ultimately your responsibility to make sure it gets paid on time.
#3 Buying Another Home Before Divorced
You may be ready to move on with your life before the divorce is technically over. In some cases this is OK but be careful and seek the advice of your attorney.
If you buy another home while your divorce is pending it may be considered a “marital asset.” If it is then that is one more asset that just came into play that is up for grabs and can become a pain point.
Some states allow specifically for this to occur and may penalize the spouse that purchased new real estate a small flat award to the other spouse that doesn’t own the house. It may be worth it to do it this way depending on your living situation.
Seek Advice From Your Attorney
As always keep your attorney close when making these decisions. I am not an attorney and don’t give legal advice. I can work on the side with your attorney to help them guide you in the right direction and give you all your mortgage options along the way.
Good luck and reach out to me if you need any help with your personal situation!