No one buys a house together thinking the relationship will end in divorce. The family house is typically the most emotional asset in dissolution, and the contents are often the most hotly contested. Deciding if you should keep the house is not a purely emotional decision. With some careful forethought and pragmatic evaluation along the way, you can determine if staying in the house is feasible, and decide what makes sense for you, your family and your future.
Start by working with a divorce professional to realistically examine your overall financial picture. The house is often (one of) the most significant assets in a marital estate. If you are negotiating to try and keep the house, you will likely need to offer other assets in exchange.
Ask yourself what am I willing to give up, in order to keep the house?– Leah Hill | Founder and CEO at Divorce Strategies Northwest
To get a complete financial picture, determine the value of the home by getting an appraisal (or two). Negotiating in mediation gives you more flexibility and control than working with opposing attorneys in litigation. Keep in mind that real estate values in Washington State fluctuate frequently, so valuation numbers may need to be re-evaluated if your divorce proceedings become lengthy and protracted.
Once you have determined the current value of the home, find how from your lender much equity is in the house. If there are no unpaid loans, the value and the equity are equal.
How to keep the house in divorce if the house is paid for:
If there are not outstanding loan(s) on the house, you and your spouse have more options in divorce. As you negotiate your settlement, you could choose to offset the house with other assets. You may choose to offer more value from your investment account(s), in order to keep the house. Your mediation team can help you be aware of the cost basis for negotiation your assets and the tax consequences for the various options you consider.
If you do not have other assets to offset the value of the home or do not want to offset the value of the home with other assets, you may choose to obtain a loan to offer your spouse a buyout of his/her portion of the current equity. If you choose to take on a new loan, ensure that you have the monthly cash flow to cover the mortgage payment, along with taxes, insurance and general maintenance of the house. Also, if you plan to pursue a new loan, take intentional care not to negatively impact your credit score during your dissolution process.
If the home is owned in both of your names and you agree to take sole ownership, your spouse will sign a Quitclaim Deed to have his/her name removed from the property.
How to keep the house in divorce if there is still a mortgage:
If you and your spouse are still paying a mortgage on the house, it can be more challenging to keep the house in divorce. Ideally, you will refinance in one party’s name, so only one person is responsible for the ongoing debt. Some lenders in Washington State will allow one party to assume the existing mortgage; this is a worthwhile option to explore and consider.
In some cases, the person who wants to keep the house does not have the income to be approved for independent refinancing. Working with a lending specialist who specializes in divorce can help you understand your options.
Depending on how much equity has been invested in the home, you may be able to refinance enough to pay your spouse out on his/her portion of the equity. If you prefer not to refinance for the higher amount, you could negotiate offsetting the equity with other assets you are dividing as community property. Mediation offers the opportunity for both parties to express their desires and come to a mutual agreement.
If you do not have the income to qualify for refinancing on your own, you may be able to find a friend, family member, or trusted mentor to co-sign the mortgage with you (in place of your spouse). If you choose to refinance, talk openly with your lender about the specifics of your situation, and ensure you understand all your options. Being “house poor” can be especially challenging when you are adjusting to the “new normal” of divorce.
How to keep the house in divorce if there’s little to no equity:
If there is little or no equity in the house, it is essential to consider whether it makes financial sense for you to stay. Despite the emotional attachments, this is a critical decision that can have a serious impact on your future.
You could negotiate to keep the existing ownership and mortgage in place. However, it must be very clear who will be responsible for the payments and ongoing maintenance. Also, clarify carefully in legally binding documentation what will happen if /when a payment(s) is missed. If both parties remain listed on the mortgage, the lender will view both parties as equally responsible. Thus, any missed payments would negatively impact both parties’ credit.
If you are unsure if you can afford to keep the house, work with a divorce professional to determine what makes financial sense for you. Consider your new monthly budget, your family’s needs and your future. While moving may initially feel unfathomable to you, realize that family is not about an address or a historical location. Maintaining traditions and stability is doable no matter where you live; spending time together is your family legacy.
Will a divorce affect my ability to qualify for a home loan in the future?
Once you have your finalized divorce decree, look at your income and your credit score, to consider qualifying to purchase a home on your own. In most situations, child support and alimony must have been received for three months and have at least a three year likelihood of continuance for this income to be used for qualifying.
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