What to do when you want to keep the house
You and your spouse have decided to divorce, and you own a house together. The thought of leaving the house and moving may cause a pit in your stomach. What if there was a way to keep the house – for the neighborhood, to be close to your friends, for stability, or to keep your children in the same school district. Separating assets is a part of the divorce process. As you navigate these decisions about keeping or selling your house, there are important topics to consider.
1. Buy out your spouse’s interest in the house.
If you have the financial means and ability to take over the house payments and can refinance or secure a new mortgage loan on the property, this may be a great option for you. You’ll want to make sure any loss of income from divorcing your spouse will not put you in a financial position where your mortgage is more than 1/3 of your income. A good mortgage broker, financial planner or your banker can determine your income and debt-to-equity ratio to see whether you can afford the monthly mortgage payments, taxes, insurance and maintenance on the property. A real estate professional can do a market analysis to determine the market value of your house, or you can hire an appraiser. Once you and your spouse decide on the value, you can work with a real estate professional, or the title company to have all loans paid off, and then you and your spouse will be able to split the value of the property after expenses, and title will transfer to your name.
Pros: You will be able to remain in the property and this will satisfy the requirement of separating you and your spouse’s assets. Your spouse will receive the money that represented the equity in the property and could use that to purchase another property.
Cons: There are usually expenses involved such as loan origination, title, escrow and transfer fees with changing ownership of the property. You will also be solely responsible for payment of the mortgage, taxes, insurance and upkeep of the property.
2. Sell to an investor and rent back.
Another option that has been gaining popularity is the sell and rent-back option. There are real estate investors who are willing to purchase your house and then rent it back to you as a tenant, allowing you to continue to live in the property. This may be an ideal situation for someone who cannot or may not want to pay the mortgage and expenses but wishes to remain in the home. There are investors who are interested in purchasing tenant-occupied homes that have cash flow. These investment groups know that people who sell their homes in this rent-back situation are good at taking care of the property and make good tenants because they have a vested interest in being in the home and in the neighborhood.
Pros: This sale allows you to get out from under a mortgage that may be too high for one person to afford. There will be no open houses or waiting for a buyer to make an offer. You will know how much you will receive and will have the money much more quickly than you would if you had the house for sale on the market. You and your spouse will be able to cash out on the equity in the house, while one of you remains in the property. The spouse who becomes the tenant maintains the lifestyle, schools, etc. and the neighbors don’t know any different. The non-resident spouse can use the proceeds of the sale to purchase another property. The new landlord will be responsible for repairs or upgrades to the property.
Cons: The market value of your property may be higher than investors are willing to pay, or there may not be a pool of available investors who are interested in purchasing properties in your area. You are no longer an owner and become subject to a rental/lease agreement. You may be paying market rent rate which may be higher than your mortgage was. You may also be subject you to rent increases over time and you may be restricted from making any upgrades or personalized changes to the property. You will continue to live in the house, but will not gain any further equity. For more information on this process, visit Sell2Rent
3. Sell the house on the open market.
In a normal real estate market, houses will sell in a reasonable amount of time when they are marketed, shown and priced appropriately. The best way to determine the true value of your home is to have it listed with a real estate professional who can conduct a market analysis, educate you on the best condition and pricing for your home, and work with you to negotiate the highest and best sale price. Having a professional who has navigated the divorce process is key to getting you a favorable outcome. This process ensures that you have not left any money on the table and there is a clear deadline for closing and moving out of the home.
Pros: You will have the comfort of knowing you are getting the highest and best offer for your home since it was exposed to the open market of available buyers in your area and price range. The asset is divided at close of escrow per the settlement agreement. You will both be able to move forward and possibly purchase the next house separate from the marriage.
Cons: There are real estate commission, transfer and title costs associated with the transaction. You must move somewhere else.
4. Stay married and keep the house.
If none of this sits well with you, you may want to dig deeper into the reasons you are reluctant to let go of the house. Our team of experts can help you with relationship challenges and this may be a sign it could be worth considering whether the marriage is worth salvaging.
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