Dealing with home ownership when a marriage ends

So the reality of the world is that a large number of marriages end up in divorce.

This is a hard enough time in anyone’s life so the lenders and the mortgage insurers have come up with a product that can help. It is the ability to refinance your matrimonial home up to 95% of its value to payout your ex their portion of the equity and perhaps even some of the debts you incurred together.

This is a specialty product and there are certain things you must do. Let’s take a look shall we?

Step 1. You must complete a legal separation agreement through a lawyer. Even if it is the most amicable split in the history of mankind, this has to be done. The reason for this is you want your rights protected fully. If you are the one staying in the house, you want to make sure that your ex has legally and irrevocably given up their rights to the home. If you are the one leaving, you want to make sure that your name is removed from the title so there is no question of you having any further obligation where it is concerned.

There will be a cost associated with the legal separation agreement. How much?

I would not dare to say but I would budget a bare minimum of $2,500. It is also important to keep in mind that legal matters often take more time than anticipated so don’t imagine you will be able to get this completed in a hurry. Make sure that you address any debts taken on during the marriage. These can be paid out from the proceeds of the new mortgage but only if they are listed.

Step 2. Order an appraisal. This has two reasons. The first is that you and your ex will be able to determine the true value of the home through an impartial third party. The second is that most lenders require it in this situation.

Step 3. Write up an offer to purchase. This one always catches people off guard. Why should you have to write up an offer to purchase on a property you already own? The answer is just this. The lenders require it. This legally binding document shows the agreed upon price and the final closing date to which both parties have agreed.

This can be completed through your lawyer, with the help of a willing real estate professional or on your own with a form available online.

Step 4. Get a mortgage. You have likely been in contact with your mortgage professional before now but if not, then now is the time. You are going to have to provide a separation agreement, appraisal, offer to purchase, a letter of employment and pay stub, last two years notice of assessments or T4s and any other required documentation.

It is very important to note that you will incur new mortgage insurance premiums if you go right to 95% of the home’s value even if you had already done so on the same property.

This is a brand new application with you as the sole borrower so a full new premium applies. This is how it could look. Home value ($300,000) with 5% equity ($15,000). A new mortgage for $285,000 with an insurance premium of $8,977.50. The total loan is $293,977.50.

So that, my mortgage minions, is a product which can help you through a very challenging time. As always we are more than happy to answer any of your questions. Until next time!

Pam Pikkert is a mortgage broker with Dominion Lending Centre – Regional Mortgage Group in Red Deer.

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