Options for When You're Both on the Mortgage in A Divorce
Let's talk about the marital home. Or any piece of marital real estate for that matter. Whatever the property, it’s got both you and your spouse on the mortgage and you’re trying to figure out your options.
The first question is whether the home as equity. If it does, great, that’s going to open some doors for you - and that’s what we’re talking about in this post.
If it doesn’t have equity, your options are less but you still have a few - check out my future posts for options if this is your scenario.
Do you want to sell or keep your home?
The first big question or decision between you and your spouse is deciding what you want to do with the home.
Do you want to stay in the home, do they want to stay in the home? Do you want to sell it?
Let’s say that your spouse decides that they want to stay in the house. Well, you’re on the mortgage, and I’m going to guess that if you’re not going to be keeping the house, you don’t want be saddled with the liability of the payment for the house.
Seems only fair right?
Plus, if your spouse misses any payments your credit score credit is negatively affected. Even if your spouse always make their payments on time, the mortgage is going to affect your debt-to-income ratio, which will make it more difficult for you to buy a house down the road.
You’re probably gonna want to get off the mortgage, all I’m sayin.
So how do you do that? Refinance.
Your Spouse Can Refinance to Remove Your Name
Your spouse is going to have to refinance the mortgage to remove your name. The only way that your spouse can refinance is if they are approved, so ultimately your spouse’s ability to stay in the home - if you want to protect your exposure and you insist on being removed from mortgage - depends on your spouse’s ability to refinance.
If your spouse is working and the house has equity, chances are pretty good that they will be able to refinance - but there are no guarantees.
Protecting Yourself if Your Spouse Fails To Refinance
So how do protect yourself if they are unable to refinance? You don’t want to be stuck after the divorce, your spouse living in the house, you’re still on the mortgage, and now your spouse is struggling to make payments for whatever reason - and you have little to no practical recourse.
Many marital settlement agreements include a plan B for this type of situation.
Specifically, they include language that if the party that is supposed to refinance, doesn’t within 90 days, then the house has to go on the market, and the proceeds will be split by the parties.
Another option could be that your spouse does the refinance before you finalize the divorce.
The problem with that though is that there won’t be a strict timeline on how quickly they should get the refinance done, so if both parties are not motivated and cooperating to get things done the refinance could really drag on.
Options for Selling the House in a Divorce
Alright so let’s talk about your options when you both want to sell the house and split the proceeds.
You’re gonna have to make some decisions here.
As you know, selling a house is a bit more complicated than selling a couch on craigslist.
What Are Your Goals in Selling The House?
Your goals and your spouse’s goals in selling the house might be different.
Your priority might be a quick sale; your spouse’s goal might be to get the highest price possible. If you are hoping for an agreed divorce you and your spouse should discuss whether you want the most money or whether you want to sell the house quickly; or maybe there's a happy medium.
It's Important to Think Through All Of The Decisions You'll Have to Make in The Selling Process
Alright - You’re gonna need a real estate agent.
How do you pick one?
You’re going to get offers for purchase of the house that are lower than your asking price. How do you decide whether to accept?
There are going to be closing costs. Who pays for those?
The house might be on the market for a bit. Who stays in the house when it’s on the market? Who pays for the mortgage and the utilities while it’s on the market?
Let’s tackle these one at a time.
How should you pick your real estate agent?
No magic formula here. If you have a real estate agent that both of you like and trust, you can go with them.
If you don’t, one option is that you make a list of three real estate agents that have experience selling homes in your area and then your spouse chooses one from that list - or vice versa.
Next - where do you draw the line on price and timing?
After speaking with the agent you’re going to have to decide what you’re listing price is going to be and what is the lowest offer is that you’ll accept. If you and your spouse are struggling to agree in these areas, you may want to defer to the agent’s advice on finding a middle ground.
Decide on Who Should Pay Closing Costs
Ok - Closing costs? Who pays em? I say split em. Next issue.
Decide Who Stays in the House When it's Listed for Sale
Who stays in the house when it’s up for sale? And who pays the mortgage and utilities? These two really go together - usually.
Obviously, you have three choices here. You both stay in the house (roommates!).
Or your spouse stays.
The right answer for you guys really going to depend on your individual situations, and will probably relate to who is willing to pay the full mortgage, if anybody.
Generally, speaking it would make the most sense for whoever is staying in the house to pay the mortgage and utilities, but there’s no inherent reason you couldn’t work out a different deal with your spouse.
There you have it, a few options for when you’re both on the mortgage and you got some equity.
Let me know if you need help talking through the options.
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