Navigating Through Separation to Solutions
“Happily Ever After”, is something we all strive for. Especially when you’ve gone as far as to find that ‘home sweet home’, and agreed to finance it together. This act of commitment is often thought of as the ‘real deal’, to a lasting relationship. Regrettably, statistics remind us that many ‘committed’ relationships, end in separation. What does that mean for your mortgage and financial future?
If you are in the unfortunate circumstance of parting ways with the person who you share your mortgage and home with, you will be faced with a dramatic change to your finances. This change will be greater magnified if you and your partner have children. Not only will the mortgage need to be mutually agreed upon, but also child support.
Here are some of your potential options:
- Selling the property is sometimes the easiest way to put your joint debt behind you. Both of you are then released of the mortgage obligations, and your equity is now available. Be aware, that this option can leave you with penalties, that may be more than you’re willing to sacrifice.
- If you wish to keep the house, it’s likely that you’ll have to buy out your partner’s share. There are some lenders who will allow you to purchase the home from your spouse or partner at 95% financing. The equity of the house is used as your down payment, allowing you to split the remaining equity, and pay off other debt. Keep in mind that you’re now expected to qualify for financing based on your personal income. This could be a substantial difference from the joint income that was used for the initial qualification.
- Perhaps it’s more of a benefit for you to let your spouse or partner keep the house. If you only remove yourself from the title, the lender still considers you jointly responsible for the mortgage payments. This scenario leaves your credit score vulnerable, if even one payment is missed. To be completely cleared of the existing mortgage, you must receive a letter of release from the lender. This will benefit your future borrowing power, as well.
- Child support and alimony payments, however, will also impact your ability to qualify for future financing decisions. If you’re receiving payments, the payments are generally added to your total personal income. You will need consistent evidence of the payments, for the lender to qualify child support and/or alimony as income. If you find yourself paying child support and/or alimony payments, the total sum is generally deducted from your total personal income, limiting your future financial decisions.
As complex as it is to sustain a healthy, happy relationship; opting out of your relationship brings along a whole new set of complicated issues. I’ve helped numerous couples navigate through this difficult time, giving them personal options to get their home financing back on track. If you have any questions, contact me today.
Blogged by Elise Hildebrandt, AMP Mortgage Associate Broker Lic #316103 @ The Mortgage Centre Brokerage Lic #31547, Saskatoon, Saskatchewan. Elise has been in the financial industry for 16 years.