How To Buy A House After A Divorce
July 20, 2023 7-minute read
Author: Andrew Dehan
If you’ve been through a divorce, a fresh start comes with new matters to consider when buying a house or refinancing your mortgage. Your former partner may buy out your portion of your current home, meaning you'll be looking for your own home, or you may stay in your current home, needing to refinance.
What To Consider When Buying A House After A Divorce
When divorcing, a lot of change is happening. You may be separating from your spouse's name. The split could be amicable, but it also could be complicated. Depending on your divorce settlement, you may be looking for a new home.
When it comes to your source of income, if you were a two-income family, losing your spouse’s income means you’ll qualify for a lower loan amount, unless you’re buying with a cosigner or a new significant other.
Getting a divorce can be expensive. Every situation is different, but it’s not uncommon for cash you have on hand to dwindle, especially if you have to hire a divorce attorney. With that in mind, be aware of some of the assets you need on hand to get a mortgage.
If your credit score is better than your ex-spouse’s, you could benefit from buying a home solely in your name. You won't have their bad credit dragging you down.
Getting Off Your Old Mortgage
If you want off your old mortgage, there are two ways to do it: release and refinance.
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Deciding To Stay In Your Current Home
Divorce causes so much change to happen in your life. Maybe you want to limit it by staying in your current home. You may find some stability this way, especially if you have kids.
Refinancing Your Mortgage
Depending on the market situation, refinancing your mortgage may be a good option. If interest rates are low and you have good credit, refinancing your mortgage could help you save money.
Requalifying For Your Existing Mortgage
If both of you are on the mortgage and one of you needs to be taken off, you’ll need to requalify for the loan using the income, assets and credit of just one person. This way, the mortgage lender knows you can still afford the payments on your own.
Removing Your Ex From The Title
If you’re refinancing your mortgage to remove your ex-spouse, you may also want to get their name off the house title. This takes away their rights to the property.
Selling Your Current Home
The other option that may arise when divorcing is selling your current home. In this action, both you and your ex-spouse come to an agreement on how to split up the money from the sale, as well as the work put into the sale. The outcome should be outlined in your divorce decree.
Selling your home or buying out your ex-spouse's share means you'll be affected by taxes. If you profit on the sale of your home, you may be subject to capital gains tax. This comes into play whenever you sell your home for more than what you paid for it.
One huge factor in deciding whether to sell is your home equity. Home equity is the portion of the mortgage you've paid off. If your home is worth $250,000 and you still owe $150,000 on your mortgage, that means you have $100,000 in equity.
Real estate is one of the biggest investments couples make together. When a couple divorces, this investment needs to be settled. Whether your ex-spouse stays in the home, you stay in the home or you sell it and split the money, you must go through the process. As difficult as divorce can be, it’s something many people have been through.
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