The marital home is likely to be one of the biggest assets in the marital estate. Not only one of the largest financial assets but likely to hold a great deal of emotions. The marital home may also offer comfort to one of the divorcing spouses as well as any children to the marriage.
When one spouse is seeking to retain the marital home, a mortgage refinance known as an Equity Buy-Out may need to be done. An Equity Buy-Out is a mortgage refinance of the current mortgage into the retaining spouse’s name as well as drawing out equity to acquire the vacating spouse’s equity ownership in the home.
One important, yet often overlooked, step in the Equity Buy-Out step is the preapproval process. Obtaining mortgage preapproval to purchase a new home has been common practice for many years. A preapproval shows the home seller that the buyer has the financial strength to obtain mortgage financing to successfully complete the purchase transaction. The mortgage purchase preapproval is one of the first steps required for homebuyers and it should be one of the first steps for a divorcing spouse before agreeing to refinance the marital home.
Equity Buy-Out Preapproval should also be required by the spouse retaining the marital home if new mortgage financing is required. A refinance due to a divorce is required to remove the vacating spouse from the current mortgage or when the in-spouse needs to buy the equity ownership from the out-spouse in cash form.
What is a mortgage preapproval?
A mortgage preapproval is a statement, usually a document or letter, of how much money a lender is willing to let you borrow to pay for a home. It’s an important step in the Equity Buy-Out process.
The preapproval for an Equity Buy-Out is based on different levels of the borrower’s financial situation, including assets, marital and individual debt, income from sources including employment, spousal or child support, property settlement notes, etc. The important thing to remember is that not all income in a divorce situation meets the definition of qualified income for mortgage financing purposes.
Why should a divorcing homeowner get preapproved for an Equity Buy-Out?
An Equity Buy-Out preapproval will not only provide the retaining spouse with an idea of how much mortgage they can afford, but it will alleviate many issues in the future should the retaining spouse not be able to qualify for mortgage financing once the divorce is final which often leads to the sale of the marital home or further litigation.
- An Equity Buy Out Preapproval allows the Certified Divorce Lending Professional (CDLP) the ability to account for all income requirements, joint and individual debt, and assets needed to successfully provide mortgage financing.
- An Equity Buy Out Preapproval can eliminate the fear of selling the home should mortgage financing not be obtainable by the in-spouse if ordered in the divorce settlement agreement.
- An Equity Buy Out Preapproval can prevent the need to return to litigation due to the inability to fulfill the requirements of the divorce settlement agreement.
- An Equity Buy Out Preapproval will provide all parties with a sense of confidence that there will be no issues obtaining mortgage financing once the divorce is final and alleviate any concerns of failure to execute.
Involve a Certified Divorce Lending Professional (CDLP) in the early settlement stages and obtain a complete analysis of the mortgage financing requirements. This essential and necessary step can help provide a smooth transaction post-divorce and remove unnecessary burdens and frustrations.
Always work with a Certified Divorce Lending Professional (CDLP) when going through a divorce and real estate or mortgage financing is present.
If you’d like to start the process of getting a home, come see us at the Tammi Lindley Team. We are Portland’s premier mortgage lenders, offering hundreds of mortgage products so you can pick the mortgage that matches your needs. Contact us today and start the process of owning your dream home.