Going through a divorce is never easy and often times, having to divide up assets makes things even more complicated or contentious. For many, the marital residence is the primary asset that the divorcing couple has to negotiate.
While there are different ways to resolve the situation, one of the most common solutions is for one spouse to “buy out” the other's share of the home equity.
If children are involved, it's typical for the spouse with custody to acquire the home equity through refinancing so the children can remain in the family home for more stability during the transition. Below we provide some steps to consider if you’re contemplating dividing home equity in a divorce settlement.
Key Steps To Dividing Home Equity In a Divorce
There are quite a few moving parts when it comes to refinancing and diving home equity. Here are the key steps you should know:
- Analyze your mortgage documents. Before you decide if dividing equity is the right decision, you should know the exact payoff balance of the mortgage. In addition, find out how much goes to Principal-Interest-Taxes Insurance (PITI) because a change in ownership can often mean a change in insurance payment.
- Be realistic about your income and credit information. Buying out home equity from your spouse means you'll have to qualify for a mortgage on your own. Evaluate your current income and obtain a copy of your credit score report to ensure all your information is accurate.
- Get an appraisal on the property. To accurately estimate the amount you have to pay your spouse and facilitate the refinancing process, you need to know the market value of the property. We suggest also looking at comparable properties in the neighborhood to get a sense of the real estate trend.
- Evaluate your options. There are different ways to divide home equity, such as cash-out refinancing or offset of assets. Make sure you understand your loan liability in different scenarios so you can choose an option that's best for your circumstances. Keep in mind that regardless of equity, one person will keep the title to the home and the other will be removed from the title. Even when there is no equity, there is a legal division of ownership in debt or assets.
- Understand community property law. If you live in a community property state, the refinancing process can be complicated until the divorce is final. You may have to create a co-ownership agreement to clarify how the payment and credit will be handled before the divorce is settled.
- Transfer the deed. Once the divorce is settled and the “payment” and division of ownership is complete, a Quit-Claim deed should be executed by the vacating spouse. We recommend filing the deed with the county recorder's office as soon as possible.
Choosing a Mortgage Refinance Company
Dividing home equity can be a complicated process that adds to everything else you have to deal with during a divorce. A reputable mortgage refinance company can show you the exact steps to take and help you evaluate the options so you can make the best decisions, get a fast turnaround time, navigate any credit challenge, and explore innovative home loans and refinancing products that meet your needs.
If you're buying out a home equity, US Mortgage can provide you with the expert advice and mortgage refinancing services you need to make the process much faster and easier. One of the ways we aim to ease the financial pain of a divorce is with our Divorce Resolution Refinance™. For divorce settlements, we waive origination fees and close your refinance in 14 to 21 days so you can move on faster. Contact us today to see how we can help.