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  Divorce And Your Home:
6 Things You Need To Know Before You Sell.
     

If you’re thinking about or already going through a separation or divorce, you’re definitely not alone. The sad truth is that more and more Canadian families are experiencing the same thing:

  • Our divorce rate has doubled since the early 70s.
  • Almost half of marriages end in divorce.
  • There are over 70,000 divorces in Canada every year.

Unfortunately, a divorce doesn’t only result in emotional pain, it can often lead to financial turmoil. After all, you’re not just breaking up a family unit, you’re breaking up an important economic unit too. Deciding how to deal with financial issues—especially those involving the family home—can be the most intimidating and potentially devastating part of ending your marriage.

As your local mortgage advisor, I have many years of experience dealing with mortgages and divorce. I’ve learned that the best way to achieve a successful outcome is to approach the divorce just as you would the dissolution of any financial partnership. This means trying to keep emotions out of the process while developing a rational, workable plan.

What you need most during this uncertain and confusing time is some unemotional, straightforward information and advice. And that’s exactly what I provide! Once you know how a divorce affects your home and mortgage, making important decisions becomes a lot easier. As a neutral third party I can help you make logical decisions that will continue to benefit you, your family and any new homes you buy in the future.

Here are just of few of the complicated issues you need to think about as you navigate the minefield of separation and divorce.

  • Decide whether you, your spouse or neither of you will continue living in the home.
    One of the first things you have to decide is whether you want to keep living in the house.
    • Will the familiar surroundings be comforting or bring back unpleasant memories?
    • Would you rather move to a new place and make a clean start?
    • If you have children, does one parent have custody?
    • Does it make sense to keep living in the same neighbourhood to minimize disruption for the children?
    • Would you and your ex prefer to have separate residences close together so the kids can attend one school and visit both homes easily?
  • Once you decide on your emotional and family needs, here are some of your financial options:
    • Sell the house and divide the proceeds. Of course, how the proceeds are divided depends on the divorce settlement, where the original down payment came from, and the property laws in your specific area. But regardless of how large a share you end up with, it’s essential to maximize your home’s selling price. I can help make sure that the financing structure is attractive to buyers, and introduce you to some of my expert real estate partners who can help you get the best price. Keep in mind that the proceeds—and therefore your share—will be reduced by the selling expenses, legal fees, etc.
    • Buy out your spouse and keep the house. Determining how much this will cost depends on a lot of factors. Your spouse may put a marital lien on the property or there may be a court order that specifies how the equity in the home has to be distributed. You may have a specified amount of time to obtain the funds to buy out your spouse. Once you know what percentage of the equity belongs to your spouse, the home’s value needs to be determined by an appraiser. This will tell you what actual dollar amount you owe. The next challenge is coming up with the funds to do this. This usually involves refinancing the home to access the equity you owe your spouse (see below).
    • Let your spouse buy you out so you can start fresh. Walking away with cash in your pocket can be great, but beware of the pitfalls! If your spouse buys you out without refinancing the mortgage, most lenders will continue to consider both of you—as original co-signers—to be liable for the loan. Even though you won’t have legal ownership of the home, this financial liability will make it very difficult for you to purchase a new home.
    • Continue to own the house jointly for a while. This can be an attractive option if you’d rather not make any immediate decisions. But again, beware of the pitfalls. If you’re sharing the mortgage payments, make sure BOTH spouses continue to pay—or the home could go into arrears or foreclosure, and destroy BOTH of your credit ratings. Also, if one spouse is going to be living in the house during this arrangement, make sure you have an agreement on rental payments and what happens if payments stop.
  • If you’re buying out your spouse, how will you pay for it?
    No matter which decision you make, there will be financial repercussions. Buying out your spouse requires you to come up with a significant amount of money in a relatively short period of time. Yes, it’s often possible to refinance the home so you can take out enough equity to pay off your spouse. But keep in mind that you’ll be making increased mortgage payments on only ONE salary—not to mention all the utility payments, medical bills, etc. If you used two incomes to qualify for the original mortgage, qualifying for refinancing on your own may be difficult.
    This is where I can help! As an independent mortgage advisor, I have access to specialized mortgage lenders who offer innovative solutions for situations just like this. I can also counsel you on ways to improve your credit score, see if you can use child support payments or alimony to help qualify for refinancing, and help you develop a new budget and saving plan that recognizes your new financial realities.
  • Make sure you have an official record of support payments.
    Accepting support payments from your spouse in cash may sound like a good idea. But if you decide to use your support payments to help qualify for the refinancing of your existing home or purchasing a new home, you could run into problems. Lenders require proof of income. You need a paper trail—an official record of on-time payment in full—so the lender can count your support as income. Without it, you may not get your financing. But don’t worry. These are exactly the kind of potential difficulties I help my clients avoid every day!
  • Put yourself in full control of mortgage payments as soon as possible.
    It’s essential for divorcing couples to realize that if they have joint debt, their credit ratings are LINKED until they separate their obligations. This means it’s in both spouses’ best interest to make payments on time. However, the stress of divorce can sometimes lead people to behave in financially unreliable or even irresponsible ways. A few missed payments on the part of your spouse, and your credit score—not to mention your family home—may be at risk. That’s why I always advise my clients to take control of payments that affect their credit rating as soon as possible (see below).
    Many couples believe that a divorce decree relieves a spouse of a joint financial obligation. But the truth is court orders and divorce decrees can’t save you from financial risk if your spouse doesn’t make agreed-upon mortgage payments. This is because when a married couple signs a joint loan application, both spouses make a legal agreement with the lender to pay back the debt. A court can’t overturn this contract without the agreement of the lender.
    Therefore, it’s vital to work with a mortgage professional who understands these legal issues and can help ensure you leave the home completely free of both the real estate AND the loan!
  • Protect your credit score.
    Your credit score is what gives you the ability to finance future purchases. If your score becomes damaged during divorce, moving on can become extremely difficult. As I said, part of my mortgage service is to counsel you on ways to preserve and improve your credit score during divorce.
    Remember, if mortgage payments are missed because your spouse has failed to make a court-ordered payment, YOUR credit score will suffer too. Regardless of what your divorce decree says or what’s fair, if you have a joint debt, you’re responsible for it.
  • Here are some ways to protect your credit score BEFORE any payments are missed:
    • If possible, close all joint credit cards immediately. If you can’t close one because there’s still money owed on the account, freeze it so no one can continue to use it (make sure you continue making at least the minimum payments in the meantime). Then come to an agreement with your spouse on transferring the joint debt to individual credit cards.
    • If you don’t have a credit card in your own name, get one now. Building your own credit history takes time, so start today!
    • While waiting either to sell your home or refinance it, make sure your mortgage payments are up to date, even if it comes out of your own money. This protects your credit score and you’ll likely be able to claim the funds back under court order.
    • As I said, make sure have your name removed from the property title AND from the mortgage, so your credit score doesn’t continue to be impacted after you’ve moved out.
  • How to finance your next home.
    If you’ve received funds from the sale of your previous home or from a buy-out from your spouse, this will likely give you a healthy down payment for your next home. But before you start shopping, it’s important to recognize your new realities:
    • Single income.
    • One person handling all the maintenance and repairs.
    • The effect that shared custody of children may have on where you buy.
    • And more!
  • As your local mortgage expert, I can analyze your current credit situation and income (including any allowed child support or alimony payments) and help you get pre-approved for financing. If you like, I can also introduce you to trusted real estate partners who can help you find the perfect home for your new life.
  • If you’d prefer to purchase a home before your divorce becomes final, I can look into your situation and make some recommendations. Keep in mind that in some cases, as long as you’re still technically married, your spouse will continue to have a marital interest in assets that you purchase. Also, you’ll have to qualify for the new mortgage without taking into account any support payments because there won’t yet be a final divorce decree. Obviously, this route requires that you proceed with caution, but I’ll be there to help and offer advice every step of the way!

As you can see, there are many financial traps you can fall into as you sell and buy during a divorce. The advantage of working with a seasoned mortgage professional like me is that I’ve dealt with all of these issues countless times and helped my clients achieve the new start they’re looking for.

The best time to talk to me is NOW before your divorce and before you start looking for a new home. I’ll sit down with you, analyze your situation in detail and outline the options available. Once we’ve determined your financial ability to proceed—or set in place a plan to improve your creditworthiness—I’ll present a range of innovative mortgages that answer your needs, then provide objective advice to help you choose the one that fits you and your family best.

Please feel free to contact me today, even if it’s just to ask a quick question without obligation:

403-852-2556
deborah.lazareff@shaw.ca

I’ve helped many people like you pick up the pieces as they set out on their own. My service is compassionate and supportive, and since I’m an independent advisor, I can usually help you find a lower interest rate, so this major part of your divorce is more affordable. I look forward to hearing from you today.

Sincerely,
Deborah Lazareff

P.S. Even if you end up using another mortgage professional, please don’t enter into any contracts until you’ve gotten my FREE advice on some of the issues raised in this report. If I can help you avoid the financial losses and emotional pain involved in making some of these common mistakes, I’m happy to do so, without obligation. Please call me at 403-852-2556 today!

 
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