| Spousal buyouts: A mortgage option worth understanding Whether you are a friend of someone going through a separation, or the person navigating the separation yourself, there is something valuable here for you. A separation brings no shortage of difficult decisions, and one of the biggest is what to do with the family home. Selling and dividing the proceeds may be the right answer, but it is not the only one. If one spouse wants to stay, a spousal buyout may make it possible to purchase the other person’s share and place the home and mortgage in the remaining spouse’s name. To the friend who knows someone separating You may be the first person they turn to for a listening ear or practical advice. Sharing clear information about options like a spousal buyout can reduce overwhelm and help them see that keeping the family home is sometimes achievable. Pointing them toward experienced guidance early can make a meaningful difference at a stressful time. To the person going through a separation You do not have to figure this out alone. Experienced brokers and agents work with these situations regularly and can walk you through the numbers, the paperwork, and the realistic possibilities so you know what options exist. There are solutions available, and having the right support can bring a measure of certainty when so much else feels uncertain. More than a standard refinance In a conventional refinance, homeowners are generally limited to borrowing up to 80% of their home’s value. A qualifying spousal buyout may instead be treated as a purchase transaction, potentially allowing financing above that limit through an insured mortgage. For example, on a home valued at $600,000: A conventional refinance would generally be limited to $480,000, or 80% of the home’s value. A qualifying spousal buyout could potentially provide up to $565,000 before the mortgage-insurance premium. That could make up to $85,000 in additional financing available to complete the buyout or address eligible joint debts included in the separation agreement. For illustration, at a mortgage rate of 4.50% and a 25-year amortization, the monthly payment would be approximately $2,657 under the conventional refinance limit, compared with about $3,252 if the maximum spousal-buyout amount and mortgage-insurance premium were financed. These figures are for illustration only, as the amount available and monthly payment will depend on the home’s appraised value, the required buyout, the existing mortgage, applicable insurance premiums and the rate available when the financing is arranged. The funds are generally used to pay out the existing mortgage and the departing spouse’s agreed share of the equity. Depending on the lender and mortgage insurer, certain jointly held debts addressed in the separation agreement may also be included. What lenders will consider The spouse keeping the home must still qualify for the new mortgage based on their income, credit, other debts and the applicable mortgage stress test. Child or spousal support received may help with qualification when it is properly documented and expected to continue. Some lenders may use 100% of qualifying support income, while others apply different limits or documentation requirements. Support payments being made must also be included when the lender assesses the borrower’s obligations. Lenders will typically ask for: A signed separation agreement setting out the division of the property, debts and any support obligations; Documentation supporting the transfer and agreed buyout amount; An appraisal confirming the home’s current value; and The legal transfer of the departing spouse’s interest in the property. Barb Eglauer Mortgage Broker (780) 720-5185 barb.eglauer@mortgagegroup.com |
