Divorces can be difficult and expensive, however good mortgage advice early can save you considerable stress and money. The first thing I will tell my clients who are starting the separation process is to continue with keeping all joint loans and payments up to date. If it is a less than amicable situation, we will often find that disputes over financial responsibility will result in payments being missed and as a result credit ratings being affected negatively. By not paying a joint debt you are sabotaging your own credit worthiness and ability to qualify for mortgages and loans in the future on your own. Keep good records of payments and if necessary, you can seek reimbursement through your lawyers at the time of negotiation and divorce.
Marital Home Buyout
When it comes to the marital home, if one party would like to remain in the property and buyout their spouse, there are a couple of options.
- Refinance the home conventionally.
- One party can refinance the property up to 80% of the value of the home. This person will need to qualify for the mortgage and any other liabilities on their income alone or with a possible cosigner.
- Refinance through Genworth or CMHC’s spousal buyout program.
- Qualified clients can refinance the home to up to 95% of the value of the property.
- CMHC’s spousal buyout program will allow the equity to be used only to pay out the spouse and not for any other debts or penalties.
- Genworth will allow the funds from the refinance to be used to pay off other matrimonial debts and mortgage penalties as long as they are specified in the separation agreement.
- For refinances over 80% loan to value clients will be subject to mortgage default insurance premiums. If the mortgage was originally CMHC or Genworth insured clients may just face a smaller top up premium, however if not, a full premium will apply.
At the time of mortgage approval, in addition to income verification and other standard conditions most lenders will require:
-A Separation Agreement. Lenders will not want to finalize a mortgage approval until there is a separation agreement in place outlining the split of assets. This protects both the lender and the client as a soon to be ex spouse could make a claim against any assets in your name.
-Proof of Support Payments: If there are child or spousal support payments and these are needed as income for the buyer to qualify, further documentation will be required. The payment amounts should be specified in the separation agreement and most lender will request up to 3 months worth of bank statements showing that the support payments are being made / received.
-An Offer to Purchase between the two spouses for the subject property (in the case of a spousal buyout).
-An Appraisal (in the case of a spousal buyout): As this transaction is not at arms length the bank or insurer will order an appraisal be completed on the property to confirm market value.
As always, I am available to help and answer any questions you may have. Please contact me anytime.
Cory Lewis – Jencor Mortgage 1