When getting divorced, what happens to the home? What happens to the mortgage?
SAMPLE CASE STUDY
- HE and SHE are getting Divorced
- BOTH own the Marital Home
- BOTH are obligated to pay the Existing Mortgage
Let's say their goals are as follows:
- SHE wishes to keep the marital home
- We call HER the "IN-SPOUSE" because SHE desires to stay IN the home
- HE does not want the home
- We call HIM the "OUT-SPOUSE" because HE desires to move OUT of the home
Typically the OUT-SPOUSE will only agree to give the IN-SPOUSE the home under 2 specific conditions:
- The OUT-SPOUSE wants to be removed from the obligation to pay the existing mortgage
- In other words, if the OUT-SPOUSE is giving up the asset, this person also wishes to get rid of the debt.
- The OUT-SPOUSE wants their "divvy" of the equity in the home
- We often refer to this divvy as the "equalization" of equity (also known as a "buyout")
Now let's add some sample numbers:
- Property Value = $1.M
- Existing Mortgage Balance = $600K
- This leaves Equity at $400K (the difference between the value and the mortgage payoff)
Let's say the divvy is 50/50:
- 50% of the $400K in equity = $200K due to the OUT-SPOUSE
- This means the IN-SPOUSE will need to come up with $800K
- $600K to pay off the existing mortgage debt
- $200K to equalize (buy out) the OUT-SPOUSE
The options are as follows:
-
Obtain an "Equity Buyout Mortgage" large enough to pay off the existing $600K and acquire the $200K buyout
- This new loan would be created at current market interest rates (which may be higher than the existing mortgage rate depending on when the existing loan was acquired).
- NOTE: The IN-SPOUSE may choose to equalize the OUT-SPOUSE in a different manner (i.e. pay the OUT-SPOUSE the $200K from other assets)
-
Sell the Marital Home
- Split the costs to sell (Realtor, Escrow, Title fees, etc.)
- Pay Off the existing Mortgage(s)
- Calculate the divvy based on what is left
- NOTE: This option does NOT accommodate the goal of the IN-SPOUSE to retain the marital home
- NOTE: If the ultimate decision is to sell the home, I highly recommend working with a Certified Divorce Real Estate Expert (CDRE).
- To learn more about CDRE's, click here.
- I can personally introduce you to CDRE's in all 50 States (feel free to reach out to me directly...contact information below).
-
Write 2 big checks:
- $600K to pay off the existing Mortgage debt
- $200K to equalize the OUT-SPOUSE
- NOTE: Clearly this is not an option for everyone, but technically, it is a potential solution for some.
-
Wait, Hope & Pray for Mortgage Rates to come down
- This option would require "staying in business" with the Ex-Spouse, which might not be desirable.
- There is no assurance that interest rates will ever drop to the desired levels.
-
Mortgage Assumption - IN-SPOUSE attempts to get OUT-SPOUSE removed from the existing Mortgage, while retaining the existing Mortgage rate/terms.
- This option will NOT allow for a higher loan amount (in other words, the $200K equalization would not be attainable from the existing Mortgage, which would require the IN-SPOUSE to find an alternative way to come up with the $200K divvy the OUT-SPOUSE desires).
- In most cases, a Mortgage Assumption is NOT an option. CLICK HERE for details.
Who can help?
Whether you are a Divorce Attorney, Mediator, and/or Divorcing Homeowner, it is imperative to know that most Mortgage Originators are NOT trained in Divorce. This lack of training may expose you to an "uncomfortable conversation" at some point in your process of working with an untrained Mortgage Originator.
The above statement is not made to "self-promote" and/or "throw mud" at my competitors. We've all heard the phrase "you don't know what you don't know" and without formal divorce training, it may be probable that this particular Mortgage Originator is not versed on the approval nuances, divorce & legal timelines & terminology, and/or specific wording that should be used in the Marital Settlement Agreement (MSA) in order to allow new mortgage financing to be successful.
My recommendation is to always consult with a Certified Divorce Lending Professional (CDLP) whenever possible. Learn more about the specific training of a CDLP by clicking here.
I can help.
- My team can assist with financing in all 50 States
- We absolutely respect the sanctity of marriage
- We do not actively promote and/or encourage divorce
- And we are certainly not "breaking up marriages" in order to generate a commission.
The fact of the matter is that divorce is part of our society, and if divorce is imminent, BOTH parties deserve the best representation possible (and that starts with aligning with highly trained professionals in each industry).
If you are a Divorce Attorney and/or Mediator, I will be happy to assist you, your colleagues, and/or your valued Clients.
Please visit www.DivorceLoanPro.com
- To Review my credentials and online reviews
- Access my educational videos and articles, and
- Opt-In to my complimentary DIVORCING YOUR MORTGAGE monthly newsletter to stay informed of industry changes & solutions on an ongoing basis.
Disclaimer: This article is NOT an offer to lend or a rate quote (it is simply provided for informational purposes only). Mortgage Underwriting Guidelines are always subject to change on any given day and additional context is needed to make an approval decision.
Jason Gordon is a Divorce Mortgage Specialist with extensive experience working with Divorcing Homeowners & Home Buyers. As the only Mortgage and/or Real Estate professional in the country to earn a CDLP, CDRE, CDS, and RCS-D, Jason has been trained to proactively identify obstacles divorcing clients face when trying to obtain mortgage financing.
Jason also provides collaborative guidance during the settlement process to better enable future mortgage financing opportunities.
Please contact Jason Gordon directly if you are a Divorce Attorney seeking Expert Services for your active court cases.
To download Jason Gordon's CV, please CLICK HERE
Comments(1)