Divorce or Separation .... What happens with the home when someone is staying?
Divorce or separation or a split when Real Estate is involved can be a challenging and emotional experience. It’s common to feel overwhelmed by the many questions and uncertainties that arise, such as:
- How does one partner keep the home?
- Can I afford to keep it?
- How is the other partner paid out?
- What happens to joint debt, and can it be paid off?
- Can alimony or child support count as income for mortgage purposes?
- How does receiving or paying alimony and child support affect my ability to secure a mortgage?
- What if I don’t have a job?
These are just a few of the many questions that can arise during this time.
It’s essential to have professionals on your side, and a licensed mortgage broker can provide the guidance you need. Rest assured, there are solutions, but we need to ensure everything is in order to move forward.
When I speak with individuals going through a divorce or separation, the most common questions I hear are: "How do I keep the house?" followed by, "How do I get my own place?" Let’s start by addressing these concerns.
Good News! Spousal Buyout Programs Are Available
There is good news for those navigating a separation or divorce—Sagen, CMHC, and Canada Guarantee offer "Spousal Buyout Programs." While these programs are essentially extended purchase mortgages, there are a few key requirements to make it work.
You can borrow up to 95% of the appraised value of the home, which opens up a few possibilities:
- Paying off joint debt
- Providing funds to the partner not keeping the home
- Allowing the party keeping the home to maintain ownership
However, the person keeping the home must qualify for the new mortgage on their own, meeting standard insurer guidelines for income and debt ratios. Additionally, a separation agreement, home appraisal, and purchase contract are necessary to complete the process.
It’s important to note that several factors can affect a mortgage application during a separation or divorce. This includes joint debts, child support, alimony, job status, and more. Whether you're looking to keep the home or get a new one, these factors will play a significant role in determining your mortgage options.
Alimony and Child Support: Do They Count as Income?
Yes, both alimony and child support can count as income when applying for a mortgage. However, they must be clearly outlined in the Separation Agreement, and typically, you’ll need to show at least three months of consistent payments into your bank account.
I’ve worked with clients, especially homemakers, who have no income except the alimony from their ex-spouse. These situations can be challenging, but they’re not impossible to work with. In these cases, a strong cosigner is often required, especially if there’s no immediate job prospect.
How Does Paying Alimony or Child Support Affect Your Home Purchase?
If you're the one paying alimony or child support, you’ll need to qualify for your mortgage under either insured or conventional guidelines. On the mortgage application, child support is generally considered a debt, while alimony can either be counted as a debt or deducted from your current income. Typically, deducting it from income is the preferred method for qualification purposes.
Can We Pay Out Joint Debt With the Spousal Buyout Program?
Yes, joint debt can be paid off if it's included in the Separation Agreement. However, the insurer may decline some payouts on a case-by-case basis. In general, though, most debts listed in the Separation Agreement can be paid off, as long as funds are available.
Do You Need a Separation or Divorce Document?
Yes, you’ll need a Separation Agreement or Divorce documents. These must be completed by a lawyer or notary. In many cases, we proceed with the Separation Agreement, as Divorce documents can take more time to finalize.
Understanding Your Options During a Divorce or Separation
According to Statistics Canada, from 2001 to 2005, there were 70,601 divorces, so this is an issue many people face. While most people consult a lawyer during these times, they often don’t realize the importance of speaking to a licensed mortgage professional. Knowing your housing options is a crucial part of the process—whether it’s keeping your current home, buying a new one, or figuring out how to manage the mortgage.
If you’re going through a divorce or separation, I’m here to help you navigate your mortgage options. Let me help take some of the uncertainty out of the process, so you can rest easier.
Understanding the Importance of Timing
One important factor to consider is the timing of your mortgage application. If you're in the middle of a divorce or separation, some lenders may want to wait until your Separation Agreement is finalized before processing your mortgage application. The timing of these documents can impact how quickly you can move forward with your home purchase or refinancing.
Impact of Changing Your Financial Situation
If your financial situation changes during the divorce or separation process—such as a change in income, employment status, or living arrangements—this can affect your ability to qualify for a mortgage. It’s important to keep track of these changes and consult with a mortgage broker to ensure your application reflects your current financial reality.
Potential for Future Financial Challenges
It's also important to consider the long-term financial implications of divorce or separation. Divorce can sometimes lead to increased financial strain due to new living expenses, child support, alimony, or the division of assets. Having a clear financial plan in place and knowing your mortgage options can help you make more informed decisions as you move forward.
Post-Divorce Housing Considerations
If you're thinking about buying a new home post-divorce, it’s crucial to consider your long-term housing needs. You’ll need to factor in not just your mortgage payments, but other expenses such as child support, alimony, utilities, and home maintenance. A mortgage broker can help you assess what you can afford and guide you through the entire process.
How a Mortgage Broker Can Help
A licensed mortgage broker can act as your advocate during these challenging times, helping you navigate complex issues like how to handle debt, alimony, and child support in relation to your mortgage. They can also help you explore different options, whether it’s refinancing, keeping the family home, or securing a new property.
Take Control of Your Mortgage Journey
Divorce and separation are stressful enough without worrying about your housing options. By consulting with a mortgage professional, you can make informed decisions about your housing situation and set yourself up for financial success in the future.
If you need any help navigating the mortgage process during a separation or divorce, feel free to contact me. I’ll guide you through every step to ensure you have the right mortgage solution in place.
Call or email today, and let’s find the best option for your situation!
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