Breaking Up the Mortgage After a Break-Up: How To Finance Your Family Home After Divorce

December 11, 2014

Finance Your Family Home_After Divorce

Divorce is a difficult time for anyone, and the thought of losing the home that you’ve grown to love can be heartbreaking. As one of your assets as a couple, your family home is typically divided between you and your ex-spouse. If you’d prefer to stay put, the option to buy out your ex-partner’s half of the asset is available. However, how do you finance this decision? Here’s what you need to know to keep yourself in your home for years to come.

Determining Value

The first step to buying out your ex-spouse’s share of the family home is determining how much it is worth and how much you owe. The most accurate valuation method is to hire a professional appraiser, but this option is costly. If you are on good terms with your ex-partner, you may be able to use comparable home prices to value your home.

The difference between the value of your home and the amount you still owe on it is the equity that you and your partner have established. For example, if your home is valued at $500,000 and you owe $200,000 on it, your equity is $300,000. You would need to pay your ex-partner $150,000 to buy out the share.

Refinancing Your Mortgage

You will need to work with a mortgage broker or your current lender to refinance the mortgage. In the example outlined above, you would want to refinance the mortgage and borrow $150,000 of the equity of the home in order to buy out your ex-spouse. Your new amount owed would be $350,000, and you would be solely responsible for the new mortgage payments.

Factors To Considering Before Buying Out

Buying out your ex-spouse’s share of the mortgage may seem like the only way that you can stay in the home that you love, but it is a major financial decision that will impact your life in the long term. Here are some factors that you should consider before you move ahead with the financing of your home.

  • You and your ex-partner may not agree on the value of the home, even if an appraisal has been completed.
  • Divorce can have a negative impact on credit, and any damage that has been done to your credit could make it difficult for you to obtain financing. Even if you can get financing, your interest rate may increase.
  • While you and your ex-spouse are figuring out the finances after divorce, you may be holding off on paying your mortgage. Delinquencies in your mortgage payments could be preventing you from getting the financing you need.

Working out finances after divorce is never easy, and determining who gets to live in your home is difficult. Even if you stay put, you’ll need to refinance to buy out your ex-partner’s share of the family home. Mortgage Choice helps homeowners find the financing that they need to stay in the home that have grown to love by offering financial planning information.

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