The holidays are clearly over. Things did not go as hoped, again. Divorce is now clearly on the people’s minds. Someone is asking themselves how will a divorce affect their home, their mortgage and their taxes? How can they make these critical decisions easier? Neutral, third-party information can help people make logical, rather than emotional decisions.
Divorce is a tough situation which opens up many emotional and financial issues which need to be solved. One of the most important decisions is what to do about the house. In the midst of the heavy emotional and financial turmoil, what they need most is some non-emotional, straight-forward and specific answers.
Once they know how a divorce affects their home, their mortgage and their taxes, the critical decisions are easier. Neutral, third-party information can help people make logical, rather than emotional decisions. Probably the first decision is whether they want to continue to living in the house. Will the familiar surroundings bring comfort and emotional security or only unpleasant memories? Do they want to minimize change by staying where they are or sell the home and move to a new place that offers a new start? Only the divorcee can answer these questions, but there will almost certainly be some financial repercussions to the decision process.
Next, what can they afford? Can they manage the old house on their new budget? Is refinancing possible? Or is it better to sell and buy again? How much house can they buy on their new budget? The purpose of this report is to help people ask the right questions so they can make informed decisions that will be right for their situation.
Typically, there are four options to consider: sell the house now and divide up the proceeds; buy out the spouse; have the spouse buy them out or retain ownership. It’s important to understand the financial implications of each of these scenarios.
First, if they sell the house now and divide up the proceeds, their primary consideration under these circumstances is to maximize the home’s selling price. A good Realtor can help avoid the common mistakes most homeowners make which compromise this outcome. As the divorcee works to get their financial affairs in order, make sure to understand what the net proceeds will be after selling expenses and after determining what the split of the proceeds will be. Note that the split may not be 50-50, but rather it may depend on the divorce settlement, the source of the original down payment and the legislative property laws in the area.
Next, if they buy out their spouse, they’ll have to determine how to continue to meet the monthly financial obligations with only one salary. If two incomes were used to qualify for the old loan, refinancing alone might be a challenge.
Or, they could have their spouse buy them out, it gives the divorcee the opportunity to start again in new surroundings with cash in their pocket; however, be aware that if the old home loan is not refinanced, most lenders will consider both partners as original co-signers to be liable for the mortgage. This liability may make qualifying for a new mortgage difficult.
Lastly, they could retain joint ownership. Some divorcing couples postpone a financial decision with respect to the home and retain joint ownership for a period of time even though only one spouse lives there. While this temporary situation means there are no immediate worries in this regard, keep an eye on tax considerations which may change from the time of the divorce to the time of the ultimate sale.
If both partners do decide to sell the home, it will be important to work together through a professional to maximize the return. Differences aside, both parties should be present when a listing contract is put together. Both should understand and sign the contract, and both should be active in the ultimate negotiations.
When they buy their next home, they can use the proceeds from their previous home or buy out to determine an affordable price range. Maintain a clear focus on getting the right home to suit the new situation. Review the details with a Realtor who offers a customized house-hunting service to help find a home that matches the new home buying criteria.
Call today, (951) 296-8887 and get the information needed to make an informed, educated sound decision.
Questions regarding available inventory and/or other real estate matters please contact, [email protected] Mike Mason, Realtor & Broker/Owner of MASON Real Estate. DRE:01483044, Temecula Valley resident for 30-plus years, Board of Director (2011-2017) Southwest Riverside County Association of Realtors.