GOING THROUGH A SEPARATION BUT WANT TO KEEP YOUR HOME?
Separating from a spouse can be emotionally draining and this is often compounded when the largest asset in many relationships, the matrimonial home, is a factor. Sometimes, both parties want to sell and buy new homes but other times, one person may want to keep the home and pay their Ex out for his/her share of the equity.
Did you know that by law in Canada, you can refinance your home up to 80% of its value? As the amount that can be taken out may not be enough to "buy-out" the other spouse, pay off joint debts, AND keep the minimum 20% equity required in their home, this can cause an issue.
But not to fret - Another option is available!
(NOTE: A version of this option known as a "Dissolution of Relationship" is also available for siblings, friends, or other forms of "joint ownership" - Contact me to learn more!)
1. SEPARATION AGREEMENT:It is imperative to speak with a Mortgage Broker early on in this process as your assets and debts may need to be noted in your Separation Agreement in a very specific way (example - car loans or Line of Credits may need to be noted as "joint" marital debt). This, in turn, can prevent having to make amendments to your Separation Agreement, which can reduce the chances of incurring any additional legal fees. Let me introduce you to a Mortgage Broker who is experienced in this to ensure that the two of you can each make the best possible start on a new path.
2. PRE-QUALIFICATION:The person staying in the home will need to QUALIFY for the full "purchase" on their own based on income, credit, etc. To ensure that you can debt service the full mortgage remaining, debts, and possible child/spousal support, request a mortgage consult and don't forget to bring your Separation Agreement!
3. APPRAISAL:In a sense, one spouse will be "selling" the home to the other. This allows you to go back to the rules where you only need 5% down to "buy". However, as we all have opinions on what our house is "worth" and this will be a "non-arms length" transaction, Lenders will request a full appraisal to confirm the new "purchase price". If you want a heads up as to what the home will sell for you can visit here.
4. DOCUMENTS:Be aware that this will now be treated like a new purchase so we will need all the standard documents to confirm income, employment, and funds. Some of the documents we will ask for are your last 2 years of tax documents, latest pay statements, Letter of Employment, and ID.
Also, an Offer to Purchase "selling" the home from both parties to the one spouse must be drafted, signed, and provided. If you would like to have us sit down and go over a purchase contract I would be more than happy to do this at no cost. Should you wish to do this blindly, send me an email and I will send you a link to a contract that you will be able to do it on your own.
5. CLOSING COSTS:Just as in a refinance, the "down payment" for this option comes from existing equity but you should also be prepared for a whole new set of legal fees, an appraisal, and any applicable prepayment penalties charged by the original mortgage Lender.
Also, if your mortgage had originally been insured (ie. CMHC), then you may be able to get away with just a top up of your mortgage default insurance premium! This could result in thousands of dollars of savings. However, if the property had not previously been insured, mortgaging up to 95% will trigger a full insurance premium.
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