When couples in Brampton, Toronto and the GTA go their separate ways, how the matrimonial home is handled is a major concern. You want to move forward as confidently as possible and that’s why it’s important to seek out the advice of an experienced mortgage professional early in the process. Expert advice on how to manage what is likely your most important asset can help set the stage for a successful separation – so the two of you have every opportunity for success on your new journeys.
Some key questions to consider before we meet so I can determine what options are available to you:
- Are you hoping to stay in the existing home?
Many couples assume that the house must be sold – but that’s not always the case. There are options that can help one partner remain in the home if that is a desired outcome, although it’s important for both parties to have a clear understanding of where they stand financially before deciding on who can possibly keep the family home. You want to make sure you can handle the mortgage on your own along with all the ongoing expenses of running the home. Here are the options –
Refinance – The home can be refinanced up to 80 per cent of its value with just one borrower’s name and qualifying on his or her own financial situation. The proceeds then pay off the existing mortgage that is in both of your names. The equity that is taken out can also pay off joint debt and provide a payout if it’s required.
Refinancing does require an appraisal of the home and for you to qualify at the current stress test, which has become an obstacle for many at today’s rates. Good income and credit will be important for qualifying. Your lender may ask for a separation agreement, and what payments are required if any for child and spousal support. If you do refinance, you’ll have the option to go for a longer amortization that can help keep your payments as low as possible if that is necessary. You’ll also want to have your former spouse removed from the home’s title.
Spousal buyout – One spouse can purchase the home outright from the other spouse who then comes off title. A Spousal Separation Mortgage allows a buyout to 95 per cent, which can provide the funds needed to pay the other spouse out and possibly pay off any other joint debt.
Assume the mortgage – Another option available is to have one spouse take over the mortgage with no release of equity to settle other debts. You’ll need to have cash available to pay out the other spouse’s share of the equity, as well as be in a strong enough financial situation to continue making the existing mortgage payments yourself. The person who is not staying requests a “release of covenant” from your mortgage lender. There may be fees involved, and every lender is different so be sure to check with them.
- Are you selling the home?
Sometimes it makes the most sense for couples to sell their home after separation or divorce. Each spouse has an equal right to stay in the matrimonial home, which means you can’t sell the home without the other spouse agreeing to it, unless you have a court order that allows you to sell the home. This applies regardless of whose name is on title.When both partners agree, the process of selling the house is relatively straightforward. Selling your home can provide each partner with some extra funds that can then be used towards purchasing their own new home, although the actual disbursement of the funds will depend on the Separation Agreement.
If you are breaking your mortgage, then prepayment penalties will apply, and the amount of this fee can be quite surprising. If you have a variable rate mortgage, the fee will be just three months interest. Fixed rate mortgages can have a much more substantial fee. Contact your lender to determine what your fee will be.
- Do you want to buy a new home?
Let’s talk. Your financial situation and overall income will likely be different than it was during your marriage, and you may also have more expenses, like childcare and/or alimony payments. You’ll want to put together a budget and take a good hard look at what you can afford. I can help with a pre-approval so you know how much you can qualify for and what your monthly payments will be so you can plan accordingly. We’ll also discuss closing costs that need to be budgeted for and your ongoing housing expenses like utilities, insurance, taxes, and ongoing maintenance.If you can’t qualify for the mortgage on your own, an option if available is a gifted downpayment from an immediate family member. You’ll need to sign a letter for your lender that states the money is a gift and you are not required to pay the funds back. Another option is to have a co-signor where that person’s financial weight is added to your mortgage application, and they become responsible for making mortgage payments if you are unable to do so. This person should have a good credit history and income. Before co-signing, this person should fully understand the responsibilities involved.
If you are finding it just too difficult to qualify for a mortgage, there are other options like alternative and private lenders. While the interest rate will be higher, you may just need a year or two to improve your financial situation and then move to a lower rate prime mortgage.
Often, it’s best to buy your home when you have finalized all legal matters. If you want to buy a house while married but separated, lenders may want to consider your spouse’s income and debt as well. The overall process may be easier once you are legally divorced. - Will you need to boost your credit rating?
Getting a divorce can affect your credit score. You may have joint credit cards that will get closed and that can affect your score. You’ll also want to make sure that all bills are paid on time during the hectic and stressful time of finalizing a divorce. Making bill payments on time is the single biggest factor in keeping your maintaining a strong credit score.It’s important to always consider your credit because a less-than-stellar credit rating can affect your ability to get the best mortgage rates. If needed, I can provide some quick strategies to help you polish your credit, and to build (or rebuild) your credit over time.
Ready to lend a helping hand
Feeling overwhelmed? That’s completely normal. Making the right financial decisions during this time isn’t easy. It’s my goal to help make this challenging time a little more hopeful: with personalized mortgage financing advice. I have helped many individuals and couples in Brampton, Toronto and the GTA who were in this same situation and made sure that they made the most informed decisions possible for their new futures.
With the right advice on your side, divorce or separation doesn’t need to spell the end of financial hope and opportunity. Let’s look at your options – as an individual or as a couple – to make sure that whatever decisions you make give you confidence now and security for years to come.
I’m here to help! Contact me today.
