What happens when two spouses that are joint owners of a home get divorced? One spouse may want to remain in the home while the other spouse is planning on moving out. What if there is a sizeable mortgage that the remaining spouse may or may not be able to afford? Is there a way to lower the existing mortgage, so that the remaining spouse is able to realistically afford it?
What if the remaining spouse hasn’t been in the workforce for a while or has been working part-time? What if the only income they are planning on receiving is alimony? Will the spouse who leaves be able to remove his or her name from the title and mortgage? These are some of the many questions that come up with home ownership and divorce.
Joining me today to tackle these questions is Margie Hofberg. Margie has over 30 years of experience in the mortgage industry and is the owner of Residential Mortgage Center Inc. She is a mortgage expert and shares a wealth of wisdom and practical advice on mortgage issues that are unique to separating couples.
You can find Margie here:
Residential Mortgage Center Inc
[email protected]
Show Notes:
[02:08] We are in person for this podcast.
[02:39] Margie is a mortgage lender who started her company in 1984. She is experienced.
[02:55] She has seen the industry change dramatically and go up and down.
[03:05] About 15 years ago, she started working more and more with families going through separation and divorce.
[03:20] She felt that she could really help people not only with her mortgage knowledge, but also with her softer skills.
[03:38] About 60% of the new loans she quotes are for divorcing couples.
[03:51] Her company is licensed in the DC Metro area.
[04:03] What couples are facing when going through divorce and one party wants to stay in the home.
[04:30] When one couple wants to stay in the home Margie helps them with an equity buyout.
[04:58] An equity buyout is a refinance as one owner of a house. A refinance is easier than a purchase. You have to have equity and cannot be underwater.
[05:42] Question one is what do you think the value of the house is? Then find the balance of the mortgage and make some assumptions.
[06:10] It’s the value of the house minus the existing mortgage divided by two. This would equal the equity buyout.
[06:47] Let’s say it’s a $400,000 house and there is a $200,000 mortgage and $200,000 of equity. To buy the other person’s share of equity it would be $100,000.
[07:22] What you would do is get a new mortgage to pay off the old mortgage plus the $100,000 in equity and closing costs. So the new loan would be $305,000.
[08:21] Find the least expensive and most reliable source to determine value. Often times, a realtor in the neighborhood will know or do a certified market analysis or CMA.
[09:46] The next step would be to determine a payment. Then you need to see if you can afford the payment. How much income do you need to qualify for that loan.
[10:35] Factors to qualify for a loan.
[10:49] The first hurdle is your debt to income ratio. Your gross monthly income compared to monthly housing expense which includes mortgage payment, credit card minimums, car loans, and student loans.
[11:56] Support can be qualifying income for a mortgage.
[12:32] You will need a signed agreement. A six month history of receiving it. It needs to come from an account with just your name from an account with just the ex spouse’s name.
[14:35] You can build the six month history before signing the agreement.
[16:08] The approval can expire. The credit report and appraisal is for 120 days.
[17:45] Use the same appraisal for the refinance and the equity agreement.
[19:12] Margie could work with both people, but would be very careful about that.
[21:05] There are fees associated with loans. It is not cost effective for small loans.
[22:08] The support also has to continue for at least 3 years after the application.
[24:20] The 3-2-1 alimony allocation. You can adjust the amounts to make sure you qualify.
[25:14] Things to qualify alimony payments include a signed agreement, 6 month payment history, and 3 years of support being paid.
[25:33] The payments have to be monthly. Child support because it is not taxed is grossed up by 125%.
[29:01] If an agreement looks like an agreement and deals with the important things being discussed, it would probably get approved.
[30:12] In the collaborative process, each couple has their own attorney and they sign an agreement and decide not to go to court.
[30:37] Margie has a lot more involvement in a collaborative place. The team contacts her throughout the process.
[32:14] Can the person refinancing take out additional money for repairs. An equity buyout is only paying off the existing mortgage, paying the other spouse equity, and closing costs. This is a no cash out refinance and has better terms. You can also go on a higher loan-to-value.
[33:49] With a lot of equity there can be a cash out refinance.
[34:20] Loan-to-value is the value of the property based on the appraisal compared to the loan amount.
[37:46] Separation agreements are recorded in other parts of the country. If your lender requires this, they are not from the DC Metro area.
[39:05] It’s important to work with a mortgage lender who has a lot of experience working with separation and divorce. It’s also important understand the laws in your jurisdiction.
[39:47] A separation agreement is a signed document. An amended agreement could hurt the process.
[42:20] Take advantage of finding a quality mortgage lender and using them, because there are no fees.
[44:13] Mortgage brokers are paid by the lenders.
Do you have any topics that you would like me to cover in future shows? Let me know in the comments below. Don’t forget to subscribe to the show, and if you are enjoying what you hear please leave a review on iTunes.
Links and Resources:
Residential Mortgage Center Inc
[email protected]
