Something I’ve helped many clients with, is arranging a mortgage while going through a marital separation. It is a complicated and stressful process involving many stages, but if you have the right people on your side, you can get through it!
There are so many steps that have to be done in a particular order, and it may seem a little daunting, but have faith, with good communication between the parties involved, it usually works! The people helping to get it done may include, mediators, lawyers, accountants or financial planners, realtors, your spouse, his/her lender and your mortgage broker.
Once you realize you are separating and require your own home, the options are for one spouse to buy out the other and stay in the family home with the other spouse buying a new house, or selling the family home and each spouse finding a new place.
Typically, most people cannot afford to pay mortgages on two homes, so the family home must be dealt with first.
If one spouse intends to stay in the matrimonial home and buyout the other, they should go to their current mortgage lender to see if they qualify to assume the mortgage on their own. If they need to refinance the home to take the equity out to pay for the spousal buyout, they can deal with their current bank or discuss options with a mortgage broker. This process involves legal work, which can be done by a lawyer or a title insurance company and would likely be in the $1000 to $1500 range.
Spouse being bought out purchasing a new place:
The spouse who is buying a new home should see a Mortgage Professional before making an offer in order to arrange a pre-approval. Understanding the process that has to take place legally with the separation in order to be ready to close on a new house is very important. At the time of pre-approval, the Mortgage Professional will most likely advise that the new purchase will be conditional on having their name removed from the mortgage of the family home. Although the separation agreement will often confirm that is the intention, a lender has to approve the other spouse to take over the mortgage in their own name and then provide confirmation that it has actually be done. The other spouse’s refinance would typically take about a month from start to finish. Once you have confirmation from their bank that it is complete, you can be ready to proceed with your purchase.
Selling the family home:
If you intend to sell the family home and each purchase a new home, you should talk to your Mortgage Professional about pre-approval so you known your price range. Most likely the down payment for your new house will be from the sale of the family home, but, if there is no equity in the family home, you will have to come up with enough cash for the down payment and legal fees/closing costs. The minimum required down payment is 5% of the purchase price, but could be more depending on your financial situation. In addition to the down payment, you should expect 2% to 3% of the purchase price for legal fees and closing costs (that may seem high, but includes the Province’s land transfer tax of 1% of the purchase price which will now apply since you are no longer a first time homebuyer). Once you have a pre-approval, you can start looking at houses. Keep in mind any offer you make should be conditional on the sale of your house. When you’ve found a house and you make an offer, contact your Mortgage Professional who will arrange official mortgage financing subject to the sale of your house. Don’t wait until your house actually sells to contact your mortgage professional. This way, as soon as your house sells you will be ready to close.
For all of the above scenarios, lenders will request a copy of the signed separation agreement to confirm the legal details of the spousal buyout, the division of any assets and debt, and any child support or alimony payments being made or received as this has an important impact on the financing being arranged. It is sometimes possible to confirm this without a separation agreement, but it makes it much more difficult to arrange financing.
If you find yourself in the middle of a separation and are unsure what steps to take to get into another home, please contact any of the Mortgage Professionals at CENTUM Mortgage Partners and we would be happy to help you through the process.