The marital home is often one of the biggest assets in the marital estate, both financially and emotionally. It offers comfort to one of the divorcing spouses and any children. Here, we discuss the value of obtaining an equity buy-out preapproval. But first, let's clarify what an equity buy-out is.
What is an Equity Buy-Out?
When one spouse wants to retain the marital home, an equity buy-out may be necessary. This involves refinancing the current mortgage into the retaining spouse’s name and drawing out equity to buy out the vacating spouse’s share of the home.
The Importance of Preapproval in an Equity Buy-Out
Obtaining a mortgage preapproval for a new home has long been common practice, showing sellers that buyers have the financial strength to secure financing. Similarly, preapproval should be one of the first steps for a divorcing spouse looking to refinance the marital home.
An equity buy-out preapproval is crucial if new mortgage financing is required to remove the vacating spouse from the current mortgage or to buy out their equity ownership in cash.
What is a Mortgage Preapproval?
A mortgage preapproval is a document or letter stating how much money a lender is willing to lend for a home purchase. It is a critical step in the equity buy-out process.
An equity buy-out preapproval considers various aspects of the borrower’s financial situation, including assets, debts, income from employment, spousal or child support, and property settlement notes. It's important to remember that not all income in a divorce situation qualifies for mortgage financing purposes.
Why Should a Divorcing Homeowner Get Equity Buy-Out Preapproval?
- Affordability Insight: Provides the retaining spouse with an idea of how much mortgage they can afford.
- Future Assurance: Prevents issues if the retaining spouse cannot qualify for mortgage financing post-divorce, avoiding the need to sell the home or further litigation.
- Income and Debt Analysis: Allows the Certified Divorce Lending Professional (CDLP®) to account for all income requirements, joint and individual debt, and assets.
- Litigation Prevention: Prevents the need to return to court due to the inability to fulfill divorce settlement agreement requirements.
- Confidence and Security: Ensures all parties that there will be no issues obtaining mortgage financing once the divorce is final, alleviating concerns of failure to execute.
Involve a Certified Divorce Lending Professional (CDLP®) early in the settlement stages to get a complete analysis of mortgage financing requirements. This essential step can help provide a smooth transaction post-divorce and remove unnecessary burdens and frustrations.
Work with a Certified Divorce Lending Professional (CDLP®)
Always work with a Certified Divorce Lending Professional (CDLP®) when dealing with divorce and real estate or mortgage financing. Their expertise ensures a smooth and successful transition during the divorce process.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
Copyright 2020 Divorce Lending Association. No portion of this post may be reproduced without the written consent of the Divorce Lending Association.
