How to Handle Mortgages Through a Divorce

The United States has the sixth highest divorce rate in the world. About 40% of marriages end up in divorce, and the rate for subsequent marriages is even higher than that. However, this divorce rate is decreasing. Although it may sound like a good thing, the decline in divorce rate is partly because many couples are staying together strictly for the money. Rising property prices and mortgage costs are making divorce a luxury, reserved only for those who can afford it. One out every 10 people say they would leave their partner if money wasn’t an issue. Even when spouses split up and get a divorce, some still end up sharing a house for the sake of the mortgage payments. 11% of individuals have friends who have split yet are still living together.

The high rate of foreclosures and short sales have caused mortgage lenders to strengthen their criteria for mortgage eligibility. Having two incomes is the most important asset towards eligibility, which makes divorce and a reduction to one income, the biggest liability. This means it is highly difficult for one spouse to buy out the other, which used to be the solution before 2008. So here are some alternatives to handling your mortgage after a divorce.

Selling the Property

Selling can be a clean break from the house, negative memories, and from each other. When selling the home, you and your spouse put the home on the market and agree to split the turnover. However, depending on your area and the market, you may not make a profit. It costs about 7-10% of your home’s value to sell. This cost covers necessary arrangements such as an agent, taxes, insurance, and any other fees that may arise during the sale of your home. Your house may be able to be sold on a short sale, which means the bank settles and takes less than what is owed to prevent foreclosure. However, this will consequently impact each spouse’s credit score.

Keeping the Home

If you are unable to make a profit, or you will lose a significant amount of money by selling your home, another option is to keep it. Both parties will remain on the loan and be responsible for their share of the payment. This can be put in legal writing within any divorce agreement, and you can mutually decide each person’s share of responsibility. You also must be careful in this instance as you are still dependent on your spouse to provide the necessary payments. If he or she misses a payment, you are also liable since your name is shared on the loan. Your lender does not have the legal agreement and therefore does not care who was responsible for the missed payment. This can once again hurt both of your credit scores.

An option to provide sufficient revenue for the mortgage payments is to rent out your home. If you have an amicable relationship after the divorce, this may be a great way to keep paying the mortgage and even make some revenue on the side. Depending on the market and your area, renters will pay more than the average mortgage cost. This can give you some extra spending money after the bills are all paid. Look up relative rental prices in your neighborhood and set a price that will cover your finances.

Using Technology and Apps

New technologies and apps are helping to make renting your home simple. You can list your home on many rental sites such as Zillow to digitize the process and receives rental updates right on your phone or tablet. These rental apps can also help you to research average prices in your area to help you set the best rental price. Nowadays, the entire rental process can even be done virtually. Once your renter moves in, he or she can pay you through virtual leasing systems and minimize the amount of time you need to take out of your daily activities. Other new apps such as AirBnB and VRBO can also turn your home into a vacation spot for days or weeks at a time, if you decide month-to-month renting is not for you.

Making the Right Decision

It is important to decide on a plan that is suitable for you and applicable to the type of relationship between you and your spouse. In order to help you make your financial decisions it is a good idea to consult a Certified Divorce Financial Analyst (CDFA). They can help you to develop plans and appropriately divide responsibilities and assets. Your divorce lawyer can then add these plans into your legal documentations. They can also help to mediate discussions and help you to make logical decisions rather than those based on emotions. We all have emotional attachments to our home and your divorce lawyer can prevent you from doing anything that will negatively affect your finances now and in the future.

Not only are there people out there to help you, but there are also apps that can make the divorce process easier. Apps such as SupportPay and 2Houses help divorcees track payments such as mortgages and rent. These apps smooth the process of collecting payments and also provides documentation in the event of legal conflict. Other apps such as Wevorce are beneficial for directing you to a mediator or divorce lawyer that is perfect for you and your situation.

Shared assets will always be a concern when a relationship breaks down, especially a marriage with the legal implications, so it is important to take your time and make use of the resources available to support you. Protecting your own finances is key but making the decision about what is going to happen to your property is the first step.

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