Guest post by Mike Olson of GO Colorado Realty
Did you know that every 13 seconds, someone, somewhere files for a divorce? When you look for a home with your spouse, you don’t think about the possibility of a divorce. You think about the fun things about owning a home like being able to decorate it with your favorite colors and style, making dinners together in the kitchen and the amazing closet to fit all your brand name shoes. The fact of the matter is that 41% of all first marriages end in divorce, and the rate is even higher for second and third marriages. There are several important things to consider when you file for divorce, and perhaps one of the most important is what will happen with your house.
If you are going through an already stressful event like divorce, you may think it seems easier to keep the house and handle the sale later. However, before you make that decision, you need to know some key things such as:
- How much you currently owe
- What amount the new mortgage would be
- The condition of the property you are essentially buying from your spouse
- Any sort of liens that may be on the home
Once you know those things, you can make an informed decision about whether to keep the house. If you decide to sell during the divorce proceedings, most fees, repairs and costs associated with selling are split between you and your spouse. If you keep the house and decide to sell later, you are responsible for the entirety of those fees and associated repairs.
How Well Do You Really Know Your Home?
A popular myth among homeowners is that because you have been living there for years, you are aware of all of the issues with the home. The truth is that there is almost ALWAYS some sort of deferred maintenance or other aspect of the home that will need to be repaired in the next two or three years. When you sell a home on the open market, all of these issues are discovered by a home inspector, and negotiations then take place in terms of what needs to be fixed.
Wouldn’t it be prudent to go through the same process when you purchase the home from your ex? I had a client once who assured me that they knew everything about the home and did not need to pay the $400-$500 for an inspection. Three months after taking sole possession of the home, they discovered a sewer line break that wound up costing over $5,000 to fix! As you can imagine, that client sure wished they would have spent a bit of money to avoid getting stuck with the WHOLE bill for that repair.
It is vital that you consider the actual valuation of the home and research any liens or debt that may be associated with the property. We don’t recommended that you use appraisals or online estimates to determine the value of the house as neither of those methods account for some aspects of the home that can have MAJOR implications for the spouse keeping the home.
Appraisals do not check for a clear title, so if you are the one to keep the house, you may get stuck with debt that you did not know even existed. You should also consider that expensive repairs may come up in the future if you decide to keep the home. If one person keeps the home, they are on the hook for the entire repair on their own after any divorce proceedings are completed. You also need to be aware that online estimate websites are based on algorithms that do not consider the specifics to a property for valuation.
Beware of Refinancing
Many people assume they can refinance to get their spouse’s name off the mortgage, but you should be cautious of this mentality. When a spouse refinances, you must remember that the new mortgage application will only have that spouse’s income to be considered in the debt to income ratio that lenders review when they decide on approval of a mortgage refinance. With increased interest rates and money that would need to be paid to your ex from the equity in the home, the mortgage may be significantly higher than you were paying previously. On the other side of the equation, if your ex misses even one mortgage payment while they try to complete the refinance, this can affect both spouses’ credit scores by 100 points or more. You should not count on being able to refinance the mortgage once the divorce proceedings are completed.
There are hidden things to consider when you talk about divorce and what to do about your real estate. Make sure to consult both a real estate agent and a divorce lawyer to review these important considerations before you make a decision about what to do with your property. Divorce is never a fun process, but doing some research with professionals beforehand can make the process go a little more smoothly and make sure you do not make a decision that you come to regret down the road.
Mike Olson is the co-owner and lead agent at GO Colorado Realty in Denver. His experiences with hundreds of transactions ranging from first-time homebuyers to seasoned developers have given him the opportunity to provide a unique value proposition to his clients. His favorite thing about his career is all the great people he gets to meet so if you ever have any real estate questions, he’d love to chat with you! Contact Mike at 303-275-7171 or firstname.lastname@example.org.