While most experts would agree that sale of a home during divorce is possibly the best answer to end all disagreements, it is not going to be smooth.
Therefore, you need to understand several aspects connected with selling your divorced home, in order to move the things toward the finish line. Everyone would like to profit the maximum amount from the deal.
Through the right approach, you can make this happen.
Guidelines for Planning
In the first place, know that you cannot plan the equity based on the current valuation of the property. This is because you have several deductions to accommodate, in addition to the real estate selling commissions.
Some of the categories of expenses are mortgage loans, interest, legal fees, transfer taxes, recording fees and your share of the property taxes.
We must also mention utility fees and mortgage interest if the buyer takes on the existing mortgage.
If your property does not incur the expenses on the things mentioned here, you may still have to cover other incidental expenses that could be more expensive than you might imagine.
The real estate agent can do a good job in this regard, preparing a seller’s net statement to project exactly how much you can expect to get in return for selling your home.
Together and Splitting the Profits
The most challenging aspect of a divorce is splitting the combined assets. It is important to understand the options you have in front of you and their consequences are.
In the first place, ensure if anyone wants to live in the house. Because of the unpleasant memories associated with the home, most times neither party would like to stay in the house. Under some conditions, the court might also decide who has to occupy the house.
The first goal of selling a divorced home is to complete the deal as quickly as possible, hoping for a reasonable outcome. If the sale is getting delayed, then the question becomes whether you will both continue to live in the property or not.
Once you have chosen to sell the home and split the profits, it is best that one of you finds temporary living arrangements while the home listed.
It is also a point to note, that at the end of the deal the profits might not be divided equally since factors influencing the split could include the terms of your settlement, the source of the down payment and the laws about property in your state.
If you are looking forward to buying the house from your spouse, then you need to think of some things. Depending on whether you want to have the house as your primary residence following the divorce, you need to consider the income of your new household.
Since the salaries will drop to one from two, then you will have to bear the mortgage payment yourself. Decide whether this is possible. If the original mortgage is in both of your names, then the toughest job comes with refinancing the property on your own merit, which would mean evaluating your credit history, job history and debt to income ratio.
The option of the equity to your spouse will give you funds to move into another place. The equity will be decided after subtracting the real estate commissions. There also will be some tax implications you need to consider.
If you are bought out, then you must ensure that you are relieved of the title. You need to escape out of the old mortgage and title if you were on them. If not, then you will be liable for late payments and back taxes which your spouse will incur.
Maintaining a joint ownership could be an option, if you wish to delay the complete possession of the property for some time due to some reasons. Under those conditions, one you can choose to remain in the house or can rent it out to someone.
There are some potential tax consequences which you will need to consider. The tax obligations and deductions could have changed from the time of divorce to the final disposing of the property. In some states, the spouse can obtain a second mortgage without your consent, something you need to address cautiously.
Buyout During or Before Sale
While deciding to buy out the other spouse’s share of the equity, you need to follow a definite course of action. First, analyze your mortgage documents to see how much you need to pay off.
Know the breakdown of the payment, the principal-interest ratio, taxes and insurance. If you have less than 20% equity in home, you have to pay the private mortgage interest. If you bundled multiple vehicles with your home, you will get discounts.
If one spouse has the history of claims, then you may have to pay a penalty. As the insurance is part of the mortgage PTI, any change in the insurance will mean a change in the payment.
If you wish to buy out your spouse’s equity, that would mean removing his or her name on the mortgage and title. For this you will first need to qualify for a mortgage on your own.
To decide on this, you need to gather the credit and income information. You need to also get your credit score.
Arrange to get a reliable appraisal of the property. This is necessary to go ahead with refinancing. While your appraiser will look at the properties in the neighborhood, you too need to do a comparative market analysis on your own.
Real estate agents can help you know the selling price of similar properties in your city.
Deciding to buy the equity is good and bad for both the spouses. While the owner choosing to retain the property will have the burdens of a mortgage, they can benefit if the house value increases.
The other partner getting out of the title of the property escapes the burden of mortgages and gets his or her share.
Unless you are living in a hot housing market or you have made a substantial down payment, you may find the equity value surprisingly low. You need to compare the present mortgage terms with your own. If the interest rates have come down, then it is worth refinancing.
Otherwise, it is better that you go for other options than a new mortgage.
If the divorce happens under amicable conditions, then co-ownership works with short-term goals.
What if divorce is not final?
Divorcing and selling a home are two independent tasks that cannot follow one another’s timeline. If the divorce is not final, you must decide what course you would take about deciding on your home.
A divorce decree or marital settlement will be about issues connected to a divorce that is not final.
The decree might say that irrespective of the status of your marriage, you both remain to be the co-owners of the property, besides stating how you will need to deal with the property and divide the proceeds of the home sale amongst you.
The first conditions should be who will continue to occupy the home until the sale. Usually, when there are children, the parent with custody will stay in the property. If you are in good terms with your spouse, you can choose to stay there till the sale of the property.
If you choose, you may both move out and rent out the property to someone to cover the mortgage expenses.
In this case, you need to be able to manage the inconvenience of showing your house to prospective buyers with the tenant living over there.
However, since the sale will not close until the marriage ends, you can choose to keep the house vacant.
If the house sale is delayed for a long time, then the mortgage payments have to be accounted for in the decree, to be reimbursed to the partner who is making the payments after the house sale.
The decree should also talk about the ongoing expenses incurred in the maintenance of the home, including the necessary repairs. If both of you share those costs, it will make the job easier.
Otherwise, an appropriate way of dealing with this issue needs to be brought forth.
This can turn out to be a very important issue, if the property does not pass through the inspection and you have to invest more money to sell it.
If the divorce is final
There are some ways to deal with your home if the divorce is final. If the value of your home is lower than the current mortgage balance, you both can decide on waiting to sell, until the value goes up.
This has its own advantages and disadvantages.
Even after the divorce, you both will retain your title in the home.
Those divorcees facing a serious financial pitfall and have been forced into this situation, sometimes choose to retain the joint ownership works. If the financial implications are really that severe, then they both can choose to live in the same house and lead separate lives.
Since this option carries several negatives, it should be exercised only if there are no other viable choices.
If you can manage the costs of living in separation but are still not prepared to sell the property at a loss, then one of you could live there with the other living outside, while both of you retain the title.
Though this can be a better option than others, there could be some unwelcome consequences which you will need to consider (mainly living in the same area as your ex).
Another aspect to consider is the level of your compatibility with him or her. After the divorce, you may get along for some time. However, this cannot be expected to go on for long as you both might come across other difficulties or other personal relationships.
The agreements you make with your ex-spouse must address how to resolve those issues.
It also needs to be decided as to who will pay the mortgage, costs of maintenance and other taxes, if the dual ownership has to continue. When the property will be sold must be specified. If one should disagree to abide by the terms of the agreement, how it will be dealt with should also be mentioned.
In the end, there are also some issues that most divorcees do not anticipate. An ex-spouse living in the house might allow someone else to move in. The property sale might not happen within the stipulated time.
The one occupying the house might act in a way that harms the sale.
Also, one spouse might remarry and would force the sale of the property before the time is ripe for a profitable sale. Such factors must also be accounted for while deciding to deal with the property after divorce.