The marital home is typically one of the biggest assets in a marital estate. The two most common ways to address the marital home in a divorce are for one party to retain the home and pay the other party their share of the equity by refinancing the current mortgage or for the home to be sold and the net proceeds split.
What is an Equity Buyout?
An Equity Buyout is often misunderstood. It’s not about purchasing the house from the other spouse; it’s handled as a refinance loan, not a purchase loan. There are two types of refinances to consider. The court’s order for one party to buy out the other’s equity doesn’t dictate the type of refinancing, each with its own limitations and requirements.
Two Types of Refinancing
- Rate/Term Refinance: Typically offers better terms with lower interest rates and access to more equity.
- Cash-Out Refinance: Carries a higher interest rate and usually allows access to up to 80% of the home's value, which can be problematic when the goal is to access equity.
To classify a refinance as a rate/term refinance, specific requirements must be addressed in the divorce settlement agreement.
Requirements for Rate/Term Refinance
- Equity Buyout in Settlement Agreement: Must be addressed independently in the homestead or real estate section, not included in an addendum that lists all marital assets and their division.
- No Cashback: No additional equity can be used for debt consolidation, attorney fees, marital debt, or cash reserves.
- Title Requirement: The borrowing spouse must have been on the title for the previous 12 months. This is crucial if the mortgage and title were in one spouse's name and the other is awarded the home.
Realistic Time Frame for Refinancing
Consider the types of income, division of debt, and other financial factors when setting a realistic timeframe for refinancing.
What if the Marital Home is Sold and New Homes are Purchased?
If the marital home is sold and one or both parties plan to purchase new homes, it’s essential to ensure they qualify for mortgage financing post-decree. This avoids future litigation and issues with the final divorce settlement agreement.
Address the division of marital debt, timeframe, and details of spousal support to help both parties succeed post-decree. This support is crucial as the family navigates through a crisis.
How Can a CDLP® Help with Mortgage Financing and the Marital Home?
Involving a Certified Divorce Lending Professional (CDLP®) early in the settlement stages ensures a complete analysis of mortgage financing requirements. This essential step provides a smooth transaction post-divorce, removing 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.
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