You and your spouse have decided to split, or you’re in the midst of parting ways, and you’re wondering if you should try to negotiate to keep the house you’ve shared. In most cases, the primary residence is the largest asset a couple has, according to the most recent Survey of Consumer Finances.
There are many reasons you may want to stay in a marital home, including:
- Friends and family in the area
- Stability for children
- Remaining in the same school district
- Proximity to work
- Emotional attachment
If you’ve decided that you’d prefer to stay put, the next question is whether it makes financial sense.
Can You Afford to Stay?
Even if you’re interested in keeping your current home, it’s important to confirm that you can afford all of the costs associated with home ownership on your own, including the:
- Property taxes
- Maintenance and repairs
Even if your spouse agrees to sell you their portion of the home, you will then need to prove you can afford to shoulder the ongoing costs going forward, without their income.
Buying Out Your Spouse
Purchasing your spouse’s portion of the home is called a “buyout” and generally consists of paying them for half of their equity in the house. For example, if your home is worth $500,000—and you both agree to that amount—and your remaining mortgage is $300,000, your combined equity is $200,000. Your spouse’s portion would be $100,000. That’s how much you would owe them.
If the mortgage has been paid off, you would owe your spouse half of the home’s current value, essentially. In our example of the $500,000 home with a mortgage balance of $0, you would expect to pay them $250,000.
You’ll want to have the house appraised before agreeing to any specific property price, however, as deferred maintenance or existing repair needs can significantly affect market value. For example, if you know the roof needs to be replaced, the plumbing leaks, or the windows are drafty, these are items that will need to be addressed short-term, and any buyer, including you, will want price concessions to ensure these repairs will be corrected.
If you can afford to write your spouse a check for their portion of the equity, you may be able to make a clean break quickly. But if you can’t, you may be able to negotiate for it by giving up your rights to other assets you owned jointly, such as cars or vacation homes, or to reduce any ongoing payments in exchange, such as alimony.
If there is a mortgage on the home, you may need to be able to qualify to refinance the existing mortgage and add in your spouse’s portion of the equity, unless you can trade for another asset instead. For example, a $500,000 home with a $300,000 mortgage plus your spouse’s 50 percent equity of $100,000 (from half of $200,000) means you would need to be able to qualify for a $400,000 mortgage to take ownership.
It is generally more difficult to qualify for a mortgage when you have only a single income for banks to consider, but certainly not impossible. Your likelihood of being able to refinance will depend on the size of the mortgage you need, your income and/or alimony coming in, and other ongoing debt payments you’re making, such as for credit cards, car loans, student loans, as well as alimony, if you’re the paying spouse.
If you know it would be difficult to refinance the home in your name alone, you’ll need to decide if you can and want to make a down payment from other assets you may be getting in the divorce, to reduce the total mortgage amount. Avoid becoming “house poor,” which means you have a gorgeous home, but you can’t afford much else because so much of your income is going toward house expenses. Being "house poor" puts pressure on other aspects of your life during a stressful period, so make sure that won’t be the case if you decide to buy the home.
If you believe you would be unable to qualify for a mortgage on your own, you may want to explore receiving permission to stay in the home for a set amount of time, such as until your children have graduated from high school or college, before selling.
While many parents would prefer to stay in the home you have shared as a family, after looking at your future financial situation, you may also realize that it doesn’t make sense to take on this financial obligation. If that’s the case, no matter how much you love the home, you could opt to try to buy a home that would require a smaller mortgage, or explore renting, even as a short-term solution.
The key right now is trying to separate your emotional attachment to the home from your financial reality. Is staying put your best option? Once you have identified the other assets to be divided, you may be in a better position to make that decision.
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