Divorcing Your Mortgage

Mike Carney, Apex Home Loans

Divorce is undoubtedly an extremely difficult time in someone’s life. Not only does it require a dramatic restructuring of your daily life, but it also demands attention to what’s often a tightly-tied financial history. The first step to starting a new, fresh chapter in one’s life is dealing with the real estate issues that arise in a divorce situation—namely what to do with the house.

When couples who own a home together split up, there are a number of options available to them when it come to their existing mortgage. You can find the most common options here. Unless the couple plans to keep the existing financing, which requires close coordination to orchestrate payments, upkeep, and tax fulfillment while limiting homebuying options for one party, all of these choices require one common thing: a firm idea of the property’s value.

In a divorce scenario, an agreement as to the current market value of a home is an essential step in deciding what can be done with mortgage financing. Here are a few ways you can determine the value of your home and considerations for each method:

  1. Find the Tax-Assessed Value: While not generally an accurate method for real estate, tax valuations are typically low by as much as 10-20 percent. If a value dispute arises during divorce proceedings, tax-assessed value will likely be given little weight in court.
  1. Comparative Market Analysis (CMA) performed by a real estate agent: CMAs involve investigating similar homes in nearby locations to arrive at a fair market listing price at little to no cost by a real estate agent. While this type of valuation may come very close to an appraisal estimate, it is less reliable and is not accepted by a mortgage lender in the event of a sale or refinance.
  1. Professional Appraisal: Home appraisals are performed by licensed third parties who have well-vetted formulas for arriving at a market price and are the most cost-effective, reliable, and accepted way to have a valuation performed. This service will cost on average $450 to $600. If either party is planning to obtain financing on the home in the near future, you could avoid a 2nd appraisal later on by having the appraisal ordered through your chosen lender. Independent appraisals performed in connection with the divorce proceedings but not ordered through the lender will not be able to be used for the financing and a new appraisal will need t be obtained. Appraisals are generally valid for 90 days and can be recertified up to 6 months.

Once you have a reliable idea of your home’s value, it will open the door for determining the next feasible step for your situation. You will be more aware of what a split in an equity stake would yield you in the case of a property sale or an equity buy-out refinance, and the divorce settlement agreement can more accurately define the terms of a future mortgage payment in the event that you and your spouse are keeping any existing financing.

Wondering which divorce documents you’ll need for a mortgage application? Download my checklist here, and email me directly with any questions!

2017-11-29T13:48:27+00:00January 3rd, 2017|