- Moving out: better during or after divorce?
- Renting vs. buying your next home
- Steps to take if you decide to rent
- Pros and cons of renting
- Pros and cons of buying
- Tips for buying a home after divorce
- Another option: live with someone else temporarily
- What about the marital home?
- Long-term housing strategies after divorce
- Building a financial plan to protect your future
After the divorce, where will you live? This is one of the (many) important decisions you'll need to make in your divorce process. If you plan to move out of the marital home, you could choose to rent or buy a home. In this article, we take a hard look at the pros and cons of renting versus buying a home as well as the different timelines you might follow.
Moving out of the marital home: during or after divorce?
So, you're moving out. To rent or to buy? Most people will do one or the other. Before the divorce has been filed, it's highly recommended that you research your options to gain an understanding of which move would be right for you.
Consider your finances, the housing market, and rental rates in your chosen area. If you have children and plan to co-parent, consider where your ex will live to minimize transportation woes. Keep in mind that it typically takes 45 to 90 days for a divorce to finalize after the paperwork has been filed. This gives you some time to resolve your living situation.
After your divorce has been finalized, the decision to rent or buy is a little less complicated. For example, since you won't be married anymore, there's no need to worry about obtaining a quitclaim deed. Your best option at this point largely depends on your financial situation. You might have enough cash to make a down payment on a new home. Otherwise, renting is an option you could try in increments of 3, 6, or 12 months while saving your money for something else.
Wait or move ASAP?
Let's look at two potential scenarios: finding a place to live before your divorce is finalized and finding a place to live after your divorce has been finalized.
If you decide to move before your divorce is finalized, renting may be the best option. The reason: You likely won't have access to funds that may be available after selling your home.
Further, some of your assets may be frozen until after the divorce is complete. Therefore, your buying power could be limited at this time.
If you want to buy a new home and have the means to make a down payment before your divorce is finalized, you may need to have your spouse sign a quitclaim deed for the property you want to buy. This document is sometimes needed to make sure the new home you buy isn't considered a marital asset.
Renting vs. buying
While both options have their perks, renting is often the preferable solution. Why? Now that you're single, you may be dealing with a limited income. What's more, any debt or credit limits you already have could impact your buying power at this time. And renting is more common than you might think. At the moment, around 36% of American households live in rental homes.
If your marital home has already been sold, you might have enough cash to make a sizable down payment on a new home. This option may appeal to you, especially if you want to establish new roots quickly after divorce.
Immediate steps to take if you decide to rent
Let’s say you want to rent an apartment. What do you need to do?
Assess your financial situation and the fees you’ll need to pay
To rent an apartment, you will likely need an application fee in the vicinity of $100. Your new landlord might let you apply this toward your rent or security deposit if you get approved, but they might not. It depends on the landlord.
You will also likely have to pay a security deposit. Some landlords also charge a move-in fee of several hundred dollars. There may be pet fees, parking fees, and other upfront costs to consider as well.
Then, there’s the cost of moving itself. Will you rent a truck and move yourself, hire a professional mover, or make multiple trips in your vehicle with your items? Regardless of how you go about it, you will be paying to get from point A to point B.
Research rental properties in your desired area and the cost of moving in your city. While moving will likely cost less than a down payment on a new house, it’s still a significant cost.
Understand single-income budgeting
You may now be solely in charge of your finances. After being married, the transition to a single-income budget can be startling. If you’ve moved into an apartment, your monthly rent can take a significant chunk of your income. You’ll want to budget accordingly.
Consider the possibility of spousal support (alimony)
Not divorced yet? Maybe your spouse has asked you to pay them temporary alimony during this phase. Or, maybe you have asked them to pay temporary alimony. Either way, this money must be budgeted for as well. Temporary alimony paid to you during this time may be a relief … but temporary alimony you must pay someone else could be a burden.
Read about temporary orders, such as a request for alimony while a divorce is pending, in our articles by Divorce Content Specialist and Lawyer Bryan Driscoll:
Of course, if you’re already divorced, you may also need to factor alimony into your budget, whether you’re the payer or the receiver. Do spousal support orders ever change once they’re made? It’s possible that a modification could occur down the road, so plan for that, too.
Suggested: Calculate and File Support Modification
Learn about professional financial planning
Not everyone has a degree in accounting or finance. If money isn’t your strong suit, be aware of the professionals who can help. You might decide to work with a specialist called a certified divorce financial analyst, or CDFA. This trained professional understands the uniqueness of your situation and can help you figure out where you can afford to live and how to plan for your future, too.
Hello Divorce offers hourly CDFA sessions to help you figure out your finances before, during, and after divorce. Read our informative article, What Is a Certified Divorce Financial Analyst?, by CEO, Founder, and Certified Law Specialist Erin Levine.
Pros and cons of renting a home during your divorce
Renting a home during your divorce offers some distinct pros and cons.
Benefits of renting a home during divorce:
- You won't need to pay maintenance costs or taxes on the home.
- A down payment is not required.
- You'll have time to save up for a down payment on a home.
Drawbacks to renting a home during divorce:
- Your rental rate could increase every 6 to 12 months.
- You won't be able to build equity in your home.
- Renting is not a permanent solution and therefore offers less stability.
Need help understanding your home-related options?
Download Divorce & Your Home, our free three-step home solution with tips and worksheets to help you understand and make the most of your home's equity.
Pros and cons of buying a home during your divorce
Buying a new home during divorce offers some distinct pros and cons, too.
The benefits of buying a home include:
- Your monthly payments will help you build equity.
- Your purchase could be tax-deductible.
- Owning a home creates a sense of stability you just can't get from renting.
The primary drawbacks to buying a home include:
- Home values could go down, reducing the value of your investment.
- Myriad maintenance and upkeep costs may be required.
- It's more difficult to move if you decide you don't like the location.
Tips for buying a home during or after divorce
Eager to buy a home after your divorce has been finalized? These three tips should help make the process easier.
Tip: Get a real estate agent and a pre-approval letter.
A real estate agent can help you understand your home-buying options based on your wants and needs. A mortgage pre-approval letter from the lender of your choice essentially tells you how much you can afford on a new home. It guides the rest of the home-buying process.
Tip: Have your down payment ready.
To buy a home in the current market, you'll likely need a great credit score and a large down payment. Most lenders require a minimum down payment of 3% to 5% of the home's listing price. That said, the down payment you make can impact the interest rate on your loan. A larger down payment of 20% will allow you to avoid paying for private mortgage insurance.
Tip: Factor in other costs.
Don't forget to account for closing costs in your budgeting. Closing costs encompass everything from inspection costs to attorney fees. Your closing costs could be anywhere from 2% to 5% of the total loan amount. What's more, since you're "starting over," you may find yourself having to invest in costly new appliances (dishwasher, clothes dryer) and furniture to outfit your new home.
Another option: live with someone else temporarily
Sometimes, it makes more sense to move in with a friend or family member during or for a short time after divorce. It can allow you to save a lot of money, get emotional support, and also might help with childcare if you have kids.
What about the marital home?
In most cases, the house you shared with your ex is considered marital property. This means it must be divided during the divorce. If you and your ex have children, a judge may allow one of you to remain in the home until the kids reach a certain age. However, the most common solution is to sell the marital home during or immediately after the divorce. In most cases, this will allow you to obtain 50% of the proceeds.
Read more about what to do with the marital home you share with your ex:
- Common Questions about Divorce and the Marital Home
- Property Rights in Divorce: Options for the Marital Home
- Divorce Home Buyout Guide
- Dividing Home Equity in a Divorce
Long-term housing strategies after divorce
When and how to consider purchasing a home post-separation
Deciding to purchase a home post-separation or divorce is a significant decision. Here are some key questions to ask yourself before you make any offers:
Are you financially stable?
Consider factors such as your income, savings, debts, credit score, and ability to afford mortgage payments, property taxes, insurance, and maintenance costs. Take into account any financial settlements or obligations resulting from the separation or divorce, such as spousal support, child support, or division of assets and liabilities.
Are there any legal considerations?
Purchasing a home may impact existing legal agreements or court orders related to the separation or divorce. This includes issues like property division, asset ownership, and financial responsibilities. You will need to clarify ownership rights and responsibilities if purchasing the home jointly with a new partner or spouse, especially if you have children from a previous relationship.
Are you emotionally ready for home ownership?
Consider how the purchase of a new home fits into your long-term goals, lifestyle, and well-being. A home is a major investment, monetarily and mentally. Do not rush a home purchase, especially as a means to “move on.”
How might buying a home impact your future plans?
Think about factors such as career stability, geographic location, family logistics, and potential changes in your household (such as cohabitation and remarriage). Consider the flexibility of your housing arrangement and whether buying a home aligns with your short-term and long-term goals.
Will you be approved for a new mortgage?
Obtain a mortgage pre-approval to determine how much you can afford to borrow based on your income, credit, and budget. This will help you narrow down your housing options and set a realistic budget. Consider factors such as the down payment, interest rates, loan terms, and monthly mortgage payments.
What’s necessary as far as location and property features?
Consider any home you are considering and its proximity to your work, schools, conveniences like grocery stores, safety, neighborhood dynamics, and potential resale value. Consider the home’s size, layout, condition, and features to ensure it fits your needs and abilities.
The effect of rental history on mortgage eligibility and home-buying prospects
Your rental history can have both positive and negative effects on your home-buying prospects. Here's how rental history may impact your ability to secure a mortgage and purchase a home.
Positives:
- Demonstrated payment history, especially if you've consistently paid rent on time and in full, demonstrates to lenders that you are capable of managing housing-related expenses responsibly.
- Timely rent payments can contribute positively to your credit score.
- A stable rental history, particularly if you've lived at the same address for an extended period, can demonstrate stability and residency within a community.
Negatives:
- Late rent payments, evictions, or disputes with landlords in your rental history can raise concerns for mortgage lenders.
- If you have a limited or sparse rental history, lenders may have less data to assess your housing payment track record. This could impact your mortgage eligibility, especially if there are gaps or inconsistencies in your rental history.
- Lenders typically require documentation and verification of rental history, including lease agreements, payment records, and landlord references. If you're unable to provide sufficient evidence of your rental history, it could complicate the mortgage application process.
Mitigating factors:
- If there are negative aspects in your rental history, providing explanations and supporting documentation can help mitigate concerns for lenders.
- Lenders consider multiple financial factors beyond rental history when evaluating mortgage applications. It can help to provide proof of income, employment stability, debt-to-income ratio, credit score, and your ability to pay the down payment (bank statements).
- If your rental history is limited or unavailable, lenders may consider alternative forms of credit history, such as utility payments, phone bills, or other recurring expenses that demonstrate responsible payment behavior.
In short, maintaining a positive rental payment track record, addressing any negative aspects proactively, and showcasing overall financial responsibility can strengthen your position when pursuing homeownership.
Building a financial plan to protect your future
Long-term budgeting for single-income households
Managing a long-term budget as a newly single-income household often requires careful planning. Here are some tips to help you:
- Understand your earnings and spending: Calculate your monthly net income after taxes and deductions. Understand how much you have available to cover expenses and savings, beyond what you want to save or invest. If you need to, track your expenses in detail to get a clear picture of where your money is going. All those little purchases like daily lattes can add up quickly!
- Create a realistic budget: Allocate funds for essential expenses first, such as housing, utilities, food, healthcare, transportation, and debt payments. Whenever possible, reserve a portion of your income for savings and emergency funds. Ideally, you’ll want to save at least 10% of your income for long-term goals like retirement, large purchases, or emergencies.
- Manage debt: If you have debts, prioritize paying them off in the largest amounts you can manage. Start with high-interest debts first (e.g., credit cards, personal loans. Consider consolidation or refinancing options to lower interest rates and simplify debt repayment. Create a debt repayment plan.
- Reduce spending: Identify areas where you can cut back to save more money for essentials. This could include dining out less often and finding free or cheap hobbies in place of larger entertainment expenses. Use budgeting tools like mobile apps to track and analyze your spending habits.
- Plan for unexpected expenses: Life happens. Consider annual insurance premiums, vehicle maintenance, home repairs, and holiday spending. Try to set aside a safety net or build an emergency fund. This should ideally be at least three months' worth of living expenses.
- Revisit routinely: Regularly review your budget and financial goals to track progress and make adjustments. Be flexible and adaptable. Simplifying now can set you up for your future goals.
Financial planning resources and assistance
Want personalized help? Here are some resources and avenues for financial planning assistance:
Certified Financial Planners (CFPs and CDFAs)
CFPs and CDFAs (who specialize in divorce finance) are professionals trained and certified to provide comprehensive financial planning advice. They can help you assess your financial situation, set goals, create a personalized financial plan, and make informed decisions about investments, retirement planning, taxes, insurance, and estate planning. Learn more about Hello Divorce CDFAs here.
Financial counseling services
Nonprofit organizations and counseling agencies often offer free or low-cost financial counseling services. These services can include budgeting assistance, debt management, credit counseling, financial education, and resources for improving financial literacy. Examples of such organizations include the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA).
Online tools
Various online platforms and tools provide resources and assistance for financial planning. These tools may offer budgeting calculators, retirement planners, investment analysis, debt repayment strategies, and educational content on personal finance topics. Examples include Dow Janes, Domain Money, and The Budget Mom.
Financial literacy programs
Many communities have organizations, libraries, and educational institutions that offer free or cheap financial literacy programs and workshops. Look up nearby programs on the web or ask your local court clerk or librarian.
Employer-sponsored programs
Ask your boss if your company offers any financial programs, resources, or benefits. You may have access to financial advisors, retirement planning tools, employee assistance programs (EAPs), seminars, and more.
Government resources
You can find valuable resources and information on financial planning, consumer protection, retirement benefits, taxes, and social security. There are national and local programs. Some entities that offer them are the U.S. Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), the Social Security Administration (SSA), and the Internal Revenue Service (IRS).
Books, podcasts, and websites
Simply do a Google search for the topic you are interested in such as “podcasts about [topic]” or “best books on [topic].”
We're here and ready to help with your divorce finance needs. You can add expert divorce finance advice to any of our low-cost online divorce plans.
