- How do I know if my mortgage is assumable? + timeline
- How do I ascertain the value of my home?
- How does support/alimony impact my ability to borrow?
- Why should I consider using an agnostic agent to sell my home?
- What is the difference between a HELOC, HELOAN, HEI?
- Can a reverse mortgage be used to keep the marital home?
- Risky to stay on loans your spouse will retain to keep the existing interest rate?
- What is a spousal equity buyout and how do I qualify for one?
- Can we both retain the title on jointly owned properties without changing it?
- I'm the only one on the mortgage but we are both on the title, will I need to refinance?
Real estate, namely the home you share with your spouse, is a top concern during divorce. Who, if anyone, will stay in the home after divorce? Will you sell the house? How can you assume the mortgage on your post-divorce income?
Here are some of the top questions I've received during Hello Divorce's free real estate strategy calls and webinars. My mission is to help homeowners and other property owners get a fair outcome and understand all their options (there are some creative approaches many of my clients were surprised (and happy) to know about. I'd love to help you, too. Schedule a call with me here.
How do I know if my mortgage is assumable? And what does a typical timeline look like when assuming a mortgage?
Generally speaking, any loan pooled into Ginnie Mae (GNMA) securitizations is assumable. Those include loans underwritten by Veterans Affairs (VA), Federal Housing Authority (FHA), and the United States Rural Development (USDA) standards. The assumption capacity exists for purchases as well as situations like divorce.
Loans pooled and insured by Fannie Mae or Freddie Mac can be assumable in divorce situations but your servicing agent (the company you send your payment to monthly) has to agree to do the assumption work for you.
The timeline for assumptions will vary greatly depending upon the internal workflow and staffing your servicing agent has allocated to the assumption process. We have had assumptions take 30 days and have seen assumptions take nine months.
You can get an idea of your assumption potential by looking up who owns your loan if you know you are not an FHA, VA, USDA loan. You can do so by starting with the loan lookup tools provided by Fannie Mae and Freddie Mac.
If you find your loan is insured by one of those companies, you should now contact your lender and ask the customer service representative about assumptions using very specific phrases such as: “I know my loan is insured by Fannie Mae, I am going through a divorce, and I’d like to be transferred to your loan assumption division.” If you call your servicer and only ask, “Is my mortgage assumable?” you will likely be told “No” – as loans are generally not assumable except in very specific situations.
Typical timeline for assuming a mortgage
Assumptions are complicated due to the following rules:
- An assumption can only be applied for after your divorce is final and you have your marital settlement agreement completed.
- You will typically not be given any clarity on whether you will qualify for an assumption or not.
- Your experience will generally not be at all similar to your most recent purchase or refinance experience with a loan officer and their processing team concerning engagement, communication, and speed to react to your inquiries.
- Assumptions can take a very long time as servicing agents are not all set up to handle assumptions and the department handling them can be very understaffed.
Conclusion
To determine if your mortgage is assumable, review your mortgage agreement, contact your lender, and consider the type of loan you have. The process of assuming a mortgage typically involves initial inquiry, application submission, lender review, approval and terms negotiation, closing, and transfer of title and responsibilities. This entire process can take several months, so it’s important to plan accordingly and stay in close communication with your lender throughout the process.
How do I ascertain the value of my home?
Home valuation in a divorce where the property will not be sold is challenging. At the risk of sounding flippant but with no intention of being flippant, the only real way to obtain the value of your home is to sell it and allow the market to tell you what your value is. But in situations where a spouse seeks to retain the home and needs a value to understand how much equity exists so a computation of a buy-out can be done, there are several ways to get an approximate value.
What is critical here is both parties understand that a variance of 5% across value models is considered industry standard and that a greater than 5% variance will occur when the home is not in the median price range of the market. Homes that are more, or less expensive than the median market value are subject to wider variances due to multiple factors and that variance can be upwards of 15% in some cases.
1. Hire a professional appraiser
A professional appraiser will provide a certified appraisal report, giving an objective and detailed assessment of your home’s value. This is often required by lenders during the buying or refinancing process.
Caveat: If you hire your own appraiser, be aware that the appraisal you receive will generally not be allowed should you need to refinance the loan you have.
2. Real estate agent’s Comparative Market Analysis (CMA)
- Free service: Many real estate agents offer a free comparative market analysis as part of their services. This analysis compares your home to recently sold homes in the area to estimate its market value.
- Local expertise: Real estate agents have local market expertise and can provide insights into current market trends and conditions.
- Neutral agent: Our guidance is to find an agent who has had recent listings in your market and is not an agent either spouse knows.
3. Online valuation tools
- Automated Valuation Models (AVMs): Websites like Zillow, Redfin, and Realtor.com offer online tools that provide an estimated home value based on public records and recent sales data. While convenient, these estimates may not always be accurate but can be a terrific proxy for valuation when the home is priced in the median value range of the market.
- Comparing multiple AVMs: Using multiple online valuation tools can give you a broader perspective on your home’s potential value, though it’s important to remember that these are rough estimates and often lack information about the home such as upgrades or stylistic choices the owners have made.
Other considerations:
1. Home inspection and improvements
- Pre-listing inspection: Consider getting a home inspection before listing your property. Addressing any issues can improve your home’s value and make it more attractive to buyers.
- Home improvements: Invest in cost-effective home improvements and upgrades that can increase your home’s value. Focus on high-impact areas like kitchens, bathrooms, and curb appeal.
2. Consult multiple professionals
If you are going to use multiple valuation sources it is important to do them at the same time since they all use recent sales to drive comparable valuations. It is also recommended that the valuations of your home be refreshed every 120 days.
How does the payment or receipt of child support/spousal support impact my ability to borrow?
Payment or receipt of child support and spousal support can significantly impact your ability to borrow in the following ways:
When paying child or spousal support:
Debt-to-income ratio (DTI) payments are considered ongoing debts. Lenders will include these payments in your debt-to-income ratio calculations, which could lower the amount you qualify to borrow.
When receiving child or spousal support/alimony:
- Income consideration: Lenders will consider this support part of your income, which can positively influence your debt-to-income ratio and increase your borrowing capacity.
- Documentation requirements: Lenders will consider this income only if you provide thorough documentation, such as court orders and proof of consistent receipt.
- Duration of support: Lenders may also assess how long you will continue to receive these payments. However, the support must meet minimum continuation requirements to be counted as income.
Understanding how these factors affect your borrowing potential can help you plan and manage your finances effectively during and after a divorce. Support payments (to or from) are something that you need to carefully consider with the help of a Certified Divorce Lending Professional (CDLP) who will work with you and your divorce team to properly word your MSA to assure lending capacity.
Why should I consider using an agnostic agent and not a friend/family member to sell my home in a divorce?
Using an agnostic agent instead of a friend or family member to sell your home during a divorce can offer several important benefits:
Neutrality, objectivity, efficiency, focus:
- Impartiality: An agnostic agent does not have a personal relationship with either spouse, ensuring unbiased representation and decisions focused on the best interests of both parties.
- Reduced conflict: Neutrality can help minimize tensions and prevent additional conflicts that might arise from perceived favoritism.
- Dedicated service: A professional agent primarily focuses on selling your home efficiently and effectively, without the distractions or emotional involvement a friend or family member might experience.
Professional expertise:
- Specialized knowledge: Hello Divorce’s referral partners have specific experience with divorce-related real estate transactions, understanding the unique dynamics and legal considerations involved. Talk to us about using a Certified Divorce Real Estate Agent (CDRE).
- Market expertise: Agents with personal relationships may not have the local or specialized market knowledge necessary to properly market your home.
Financial considerations:
- Maximizing value: A neutral, professional agent will aim to achieve the best possible sale price for your home, benefiting both parties financially.
- Avoiding strain: Mixing personal relationships with business can lead to strained friendships or family ties, especially if disagreements arise over the sale process.
Professionalism and communication:
- Clear communication: An agnostic agent can facilitate clear, professional communication between both parties, ensuring that everyone is kept informed and that decisions are made collaboratively.
- Emotional support: By handling the sale professionally, the agent allows both parties to focus on their well-being and other aspects of their divorce, reducing overall stress.
Overall, an agnostic agent provides the necessary neutrality, expertise, and professionalism needed to navigate the complexities of selling a home during a divorce, ensuring a fair and efficient process for both parties.
What is the difference between a HELOC, HELOAN, HEI?
Understanding the different home equity financing options can help you make informed decisions about home equity management. Here are the key differences between a Home Equity Line of Credit (HELOC), a Home Equity Loan (HELOAN), and a Home Equity Investment (HEI):
Home Equity Line of Credit (HELOC):
- Structure: A HELOC is a revolving line of credit secured by your home’s equity. It works similarly to a credit card, allowing you to borrow up to a specific limit, repay, and borrow again.
- Interest rates: Typically variable, which means the interest rate can change over time based on market conditions. These are often tied to the Prime Rate.
- Repayment: You only pay interest on the amount you draw. During the draw period (usually 10 years), you can borrow and repay multiple times. After the draw period ends, you enter the repayment period (typically up to 20 years), in which you repay the outstanding balance with interest on an amortized schedule like a traditional mortgage.
- Flexibility: Offers flexibility as you can borrow as needed up to your credit limit, pay down, and use it over again.
Home Equity Loan (HELOAN):
- Structure: A HELOAN is a lump-sum loan secured by your home’s equity. You receive the entire loan amount upfront.
- Interest rates: Fixed, providing stable and predictable monthly payments over the life of the loan.
- Repayment: You repay the loan in fixed monthly installments over a set term, usually 5-30 years.
- Certainty: Offers predictability with fixed interest rates and payments.
- Benefit: Offers a lower initial interest rate than a HELOC.
Home Equity Investment (HEI):
- Structure: An HEI involves selling a portion of your home’s equity to an investor in exchange for a lump-sum payment. You don’t make monthly payments. The investment can best be summarized by stating the borrower would receive 10% of the home value today as cash in exchange for 20% of the home value ‘tomorrow.’ 10% is an example, and investments can range from 5% to 22% of a home’s appraised value.
- Interest rates: There is no interest rate since it’s not a loan. Instead, the investor earns a return based on the future value of your home.
- Repayment: The repayment occurs when you sell your home, refinance, or at the end of the investment term, typically 10-30 years.
- No monthly payments: Since no monthly payments exist, this option can be attractive for homeowners with limited cash flow or those who prefer to avoid taking on more debt.
- Credit qualifications: HEIs offer more latitude on consumer FICO scores and debt-to-income ratios than debt instruments, making them more widely available to varied credit profiles.
Key considerations:
- Credit requirements: HELOCs and HELOANs generally require a good credit score and sufficient income to qualify.
- Equity requirements: All these options require you to have sufficient equity in your home.
- Financial goals: Choose based on your financial needs—flexibility (HELOC), stability (HELOAN), or avoiding monthly payments (HEI).
Understanding these differences will help you choose the right option based on your financial situation and goals.
Can a reverse mortgage be used to keep the marital home in a divorce?
A reverse mortgage allows homeowners aged 62 or older to convert part of their home equity into cash without having to sell the home or make monthly mortgage payments. The loan is repaid when the borrower sells the home, chooses to pay the loan in full, or passes away.
Using a reverse mortgage in a divorce:
- Equity buyout: One spouse can use a reverse mortgage to buy out the other spouse’s share of the home equity. This can enable one spouse to keep the home while providing the other with their share of the equity.
- No monthly payments: Since reverse mortgages don’t require monthly payments, the spouse remaining in the home can stay without the added financial burden of mortgage payments.
- Qualification requirements: The spouse keeping the home must meet the age requirement (62 or older in most cases, products down to age 55 do exist) and have sufficient equity in the home. The amount available to borrow depends on the age of the youngest borrower, the home’s value, and current interest rates.
Key considerations:
- Ownership and residence: The spouse taking the reverse mortgage must live in the home as their primary residence.
- Equity amount: The amount of equity that can be accessed through a reverse mortgage is typically between 35-45% of the home’s value, depending on the borrower’s age and current interest rates.
- Costs and fees: Reverse mortgages come with upfront costs, such as origination fees, mortgage insurance premiums, and closing costs. These should be carefully considered.
- Impact on heirs: The loan must be repaid when the homeowner sells the home, or passes away. Heirs are generally not impacted nor lose any residual equity in the home upon sale nor responsible for situations when the value of the home cannot cover the accrued mortgage balance.
Is it too risky to stay on the loans of properties that your spouse will be retained in order to keep the existing interest rate?
Staying on the loans of properties that your spouse will be retaining to keep the existing interest rate can be properly structured with good advice but does carry additional risks that require evaluation. Here are some factors to consider:
Risks involved
Liability
- Credit impact: If your spouse misses payments, it will negatively impact your credit score, as you are still legally responsible for the debt.
- Foreclosure risk: In the worst-case scenario, if the property goes into foreclosure, it will affect your credit and financial stability.
Financial ties
- Future loans: Your debt-to-income ratio can remain high potentially limiting your ability to qualify for new loans or credit unless you properly structure your marital settlement agreement, which Hello Divorce can help with.
- Financial dependency: Your financial future is tied to your ex-spouse’s ability to manage the loan.
Control
Lack of oversight: You won’t have control over how the property is managed, but you’ll still be liable for the loan.
Value/maintenance
- Value: Structuring your MSA to account for value changes (good and bad) from the date of the MSA being final until the end of your agreement needs to be accounted for.
- Repairs/maintenance: Hello Divorce can assist with properly structuring your MSA to account for the responsibility of future maintenance and repairs.
Potential Benefits
- Lower interest rate: Keeping the existing loan can be financially advantageous if it has a significantly lower interest rate than currently available by making more money available for support payments.
- Avoiding refinance costs: You save on the costs associated with refinancing the loan.
- Continuity of education/athletics/friends: When children are involved, parents focusing on the best outcome for the children can have excellent outcomes with this approach.
Strategies to mitigate risks
- Refinancing in spouse’s name: Ideally, your spouse should refinance the loan solely in their name. This will remove your liability and separate your finances.
- Legal agreement: Draft a legal agreement outlining responsibilities and consequences if payments are missed. However, this does not replace the liability to the lender.
- Monitoring payments: Set up a system where you can monitor payments to ensure they are being made on time.
- Seek professional advice: Consult with a financial advisor or real estate strategist to assess your specific situation and explore all options.
Conclusion
While there can be some financial benefits to staying on the loan to keep a favorable interest rate, the risks often outweigh these benefits. It's crucial to consider your long-term financial health and liability. Working with a financial advisor or a divorce real estate strategist can help you navigate these decisions and find the best solution for your circumstances.
What is a spousal equity buyout and how do I qualify for one?
1. Equity buyout qualification
- Spouse’s financial situation: The primary factor in qualifying for an equity buyout is your spouse's financial ability to secure a loan for the buyout. This involves assessing their credit score, income, debt-to-income ratio, and overall financial stability.
- Loan approval: The workflow for this process is exactly the same as your most recent purchase or refinance transaction. Your spouse needs to apply for a loan that will allow them to buy out your share of the equity. This could be through refinancing the current mortgage or obtaining a new loan.
Can we both retain the title on jointly owned investment properties without changing the title or loan agreement?
Potentially, but a review is suggested for the following reasons. Many investment properties are conversions from owner-occupied properties and parties should review how they hold title as unmarried persons hold title differently than married couples do. Also, depending on how the original mortgage was written, the document needs to be reviewed to ensure you are compliant with lender requirements of occupancy seasoning. The checklist below is a good start, but incomplete. Consultation with a real estate attorney and/or tax advisor is suggested due to the complexities of local laws and any taxation implications of investment property.
1. Ownership and management
- Joint ownership: Both parties will retain their ownership interest in the property. Decisions regarding the property, such as renting, maintenance, or selling, will need to be made jointly.
- Management agreement: Consider creating a management agreement that outlines each party's responsibilities and how decisions will be made to avoid future conflicts.
2. Legal and financial implications
- Liability: Both parties remain liable for the mortgage and any other financial obligations related to the property. If one party fails to meet their obligations, it can affect both parties' credit scores.
- Income and expenses: Any income generated from the investment property, such as rental income, should be shared according to the ownership agreement. Likewise, expenses should be divided as agreed.
3. Potential issues
- Conflict resolution: Having a clear agreement in place for resolving disputes is crucial. This can include mediation or arbitration clauses.
- Future changes: If circumstances change, such as one party wanting to sell their share or refinance the property, you will need to address these changes jointly.
4. Consultation
- Legal advice: Consult with a real estate attorney to ensure that your joint ownership and any agreements you make are legally sound.
- Financial planning: Work with a financial advisor to understand the implications of maintaining joint ownership, including tax considerations and long-term financial planning.
Conclusion
It is important to have clear agreements in place to manage the property effectively and handle any potential disputes. Consulting with legal and financial professionals can help ensure that your joint ownership is managed smoothly and beneficially for both parties.
If I am the only one on the mortgage but we are both on the title, will I need to refinance?
If you are the only person on the mortgage you do not need to refinance the home to remove them from title. While a quit claim deed (QCD) is generally considered adequate for title removal, this can also be state-dependent. For example, QCDs are not used in Texas – Special or Warranty deeds are. QCD would be the colloquial term for removing a titled borrower, so just confirm which format is preferred in your location.
More questions? Schedule a real estate strategy call with me right now.
