How Do I Keep My House In A Separation?

You’re splitting up and you need to deal with the matrimonial home. You have 3 main options. Please note: in all cases, all banks will want to see a separation agreement in place so that they know who’s paying whom and if so, how much!

3 OPTIONS

1. You sell the house and split the profits (assuming it’s a 50/50 arrangement).

This may be the simplest solution. Let’s take a typical example.

Realty Commission

When you sell the home, you will likely need to pay a realtor commission. Count on about 4% of the sale price. So if the home sells for $700K, that’s $28K +tax (say $32K).

Pay Out Mortgage

You will also likely need to pay out any (shared) debts, and pay out the mortgage. There may be a penalty to pay out the mortgage early which, depending on the terms, could run upwards of $20K+ on a $500K mortgage. That’s pretty much a worst case scenario.

Your Share Of The Profits

If your mortgage were $500K, then you would walk away with half of $700K – $32K – $20K -$500 = $148K. Now you have $74K towards the down payment and closing costs on a new home (assuming you will not be renting), and you would need to qualify for a mortgage on the new place.

Buy Your Own Places

Let’s say you are purchasing a $650K. You could put $65K down (10%), $10K towards closing costs, and you would need to borrow $585K. Assuming no other debts and good credit, you would need a yearly gross income of about $140K to qualify. If you receiving alimony and/or child support, that income can be used to qualify. If you are the one who is paying the support, that reduces your ability to qualify.

2. You “buy out” your spouse.

The first step here is that you will both need to agree on a number.

To determine that number, you need to first agree on the value of the home. Sometimes we will suggest that each picks a couple of realtors to give their estimate and you go with the average or something in the middle. That is the cheapest way, alternatively, you can get an appraisal but that will cost you around $400. The one who is getting bought out wants the value to be high. The one who doing the buying out wants the value to be low.

Cost To Buyout

Once you agree on a value, usually you will take the difference between that value and debts and the person getting bought out gets half. In other words, if the value of the home is $700K and the mortgage is $500K, the person who is leaving gets ($700 – $500)/2 = $100K. Better than option 1 where you each got $74K.

Come Up With The Cash

However, the person who is doing the buying out needs to come up with $100K. How? Likely by refinancing. The problem in this scenario is that you can only refinance a home up to 80% of its value, that is, $560K. That’s $40K short. Let’s assume for now that there is sufficient value in the home to borrow $600K. The person who is remaining in the home will need to qualify for that mortgage, requiring about $140K gross yearly income. Again, alimony/child support can be used to reach that number.

3. Your spouse buys you out.

You receive half of the equity in the home (see how above) and you go buy your own home or rent. You will use your half towards the down payment (minimum 5%) on a new home. You will need good credit and you will need to qualify with your income. See option 1 for details.