Divorce is the last thing that a couple having a joint mortgage would love to handle. Added to the stress of going through the divorce process in courts, it still has to sit down and discuss financing the mortgage. What about if they have children? Children old enough to be in high schools and colleges. They will have to calculate their moves, not to damage the family reputation and children’s future. However, it does not mean that the most challenging decision cannot be solved. Nearly a million couples divorced between the years 2017 and 2018, which means at least there is a living experience on how to deal with home financing if the marriage lands in a divorce quarter. Therefore, here are the six options a couple can use to handle home financing alongside the divorce process.
Refinancing the Home
The simplest solution to handling the mortgage is refinancing the home to remove one name off the mortgage payment list. The husband can either decide to refinance the mortgage to pay off the wife her equity and remove her name from the property title deed. Once the mortgage refinancing is closed, the one whose name remains on the mortgage is responsible for the monthly payment settlement. However, as much as refinancing a home during a divorce sounds to be the cleanest way to handle home financing, it has its limitations in case the person remaining with the house does not meet the following factors;
- Income: The person staying may not have enough income to pay the mortgage, and the mortgage lender may not approve the loan for a single-income household. Therefore, the spouse will have to increase revenue quickly to pay for the second mortgage.
- Credit score: If your credit score had fallen during the original mortgage, you might not qualify for a refinance. You can opt for a rapid score to overcome a low credit score, although its success is uncertain. The only solution is to rebuild your credit score before refinancing your home.
- Equity: In case you two bought the house when the value was higher, there is a great possibility that you have not built enough equity for refinancing. You will have to look for mortgage options that deal with low or lack of equity.
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Selling the Home
Listing the home on the market for sale and splitting the profits when it sells is another option to deal with a mortgage during a divorce. Selling the home needs you two to determine how the mortgage payments are handled before the sale closes.
However, this is a short-term challenge rather than a long-term one. Again, this option depends on certain factors to work. For example, maybe you have children, and you feel it is not right to move them out of their home. Or, the rental market in your location is weak, and you are afraid of making losses. Additionally, selling your home involves substantial equity, which costs between seven and ten percent of the home value. This cost includes agent fees, taxes, title insurance, and miscellaneous fees. Therefore, you may have to sell your home for a higher value than the mortgage to break even or come with a check at the closing of the sale.
Talking to Your Mortgage Lender
Getting in touch with your mortgage lender during a divorce is a crucial step, especially if there are repayment issues. Maybe your partner is refusing to pay their share for a joint mortgage, or you are facing problems paying for the mortgage alone. Of course, not all divorces end amicably, and you may end up in mortgage disagreements. Before things start moving in the wrong direction, talk to your mortgage, and inform them about the current situation. Don’t wait until you start missing repayments; that is when you call your mortgage lender. Lenders without prior notice about mortgage defaults will not do anything to help. Therefore, when you anticipate things will not move well during and after separation, talk to your mortgage lender who appreciates an early notice of potential delays.
Co-Owning the Home
In a situation where you have younger children and cannot find the right solution to separate the family, co-owning the home becomes the best option. It sounds crazy sharing a house with someone you don’t want to see every day, but it is the best solution, especially when none of you can afford to buy a new home. It is also ideal to co-own the house with your ex when one person offers to buy out the property at some point but cannot do it at that moment. Therefore, both parties can agree to co-own the property, pay down the mortgage, build up equity, and deal with transactions at a later stage when things are better. However, the strategy involves some agreements that both parties must agree, including understanding that any missed payment will fall on you even if you do not live in the home.
Renting the Home
This option demands you both move out of the home, rent the property to the tenants, and allow it to pay the mortgage as it builds the equity. However, the solution also means you two will have to pay for rent in your new accommodation unless you will find free accommodation or live with relatives. So, this may not be a perfect option to handle your home financing. Therefore, if you choose this strategy, you will need advice about the tax implications such as income tax and capital gains. Additionally, you may need to figure out many factors before going into business with your ex. First, you must be able to work together and divide responsibilities concerning property maintenance. If not, working with your new ex for sometime before the home builds up enough equity for reselling may sound like a crazy idea.
One Person Living in The Home
During your divorce, the court may rule out one spouse to remain home to take care of the kids while another spouse buys or rents a separate home. In this option, the higher-earning parent is the one who moves out but is still entitled to pay for the mortgage as part of their child support. The low-earning parent remains the custodial parent in the home for a specific period, usually, until the kids are old enough to leave home or when the home will be ready for sale. However, there may be issues, especially when one party decides to remarry. The other party may choose to stop paying for the mortgage and ask for their equity. Therefore, if you select this option, you need to spell out clearly in the divorce agreement how you will trigger the sale if things are no longer moving as expected.
While divorce is stressful, emotional, and challenging to deal with, planning for a financial commitment can solve many problems that are likely to appear on the way. Remember, you are moving to the next phase of life, and the last thing you would wish is to be pinned down to your past. Therefore, make wise choices that will not hurt you and your family. At least you will be happy some years later that you made a smart financial choice that did not leave you in debt.