By Rachel Puryear, Realtor with Berkshire Hathaway, (DRE 02099554), Legal Consultant, and Mortgage Loan Originator (NMLS 2019354)
Breaking up is always hard to do. Many divorcing couples decide to sell their marital home, divvy the proceeds, and live elsewhere. But if you have a home you have loved for a long time and are worried you might have to sell it because of a divorce, that is yet another loss on top of everything else.
If you or someone you know is going through a divorce, and wants to know about their options for keeping their home; here are some tips, including questions to go over with a professional:
Learn What Interest You and Your Spouse Have in the Home:
If you lived in California during your marriage, you and your spouse likely share at least some financial interest in the house; as California is a community property state. Factors including when you acquired the home; how long you have been married and making payments on the home; and whether you and your spouse have specific agreements (like a prenup) which determine how you share or separate your finances; are important in determining each spouse’s interest in the house.
For instance, a couple who bought a house after getting married, and paid on the house entirely with money earned during marriage, will normally have equal ownership interests in the house (absent a valid written agreement otherwise). For instance, let’s say that Chris and Peter married with nothing, saved during their marriage and bought a house together, and paid on it with joint earnings; they would share equal ownership and interests in the house.
However; let’s say instead Chris bought a house and owned it for 10 years as a single person, and then married Peter and they made payments with their earnings during marriage for two years until divorcing. Chris will own the house and most of the interest in it, but the marital community – which includes Peter – will have a proportional interest in the house because of the community funds used to pay on the mortgage (again, absent a valid written agreement otherwise).
The greater an interest you have in a house, the better your chances are that you could afford to buy out your spouse’s interest using a refinance. Nonetheless, never assume you cannot do this type of refinance just because you don’t own most of your house – still talk to a professional if you are interested.
Check Your Credit, Add Up the Financials, and Find Out how Much Equity is in Your Home:
Of course, the more equity is in your home, the more money can be borrowed towards refinancing and buying out any interest of your spouse. And the better your credit, the better chances of getting a loan, and the better the terms which can be obtained.
Again, however, don’t assume that less than ideal credit is necessarily a barrier. There are lots of lenders out there, as well as ways to improve your credit.
It will also be important to determine what your finances will look like after separation from your spouse. If you both have incomes, you will have less income on your own. At the same time, if part of the mortgage has been paid down during the marriage, you will not need to borrow as much to refinance as you did when you first bought the home.
Note also that California exempts from reassessment property transfers from one spouse to another, as part of a divorce settlement. So even if both of you are on title, removing your spouse from title as part of a buy-out would not trigger reassessment.
Talk to a Professional:
A professional team with a background in real estate, family law, and finance can give you the help you need in this type of service. Your humble Free Range Law and Real Estate host and her team can offer you such guidance. Please feel free to reach out to me, or to share this post with a loved one who might be interested.
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