Financing Our Home Again

As couples move through all the decisions their divorce requires them to make, inevitably they must make a decision regarding their home. In my most recent post I discussed the emotional impact of this decision both on each divorcing party and their children. Once we have come to understand the place our home has within the values of our overall finances and wealth, we must decide what to do with it.

That question while seeming simple, do we keep the home or sell it, in reality has complicated answers. Selling or buying a home can be intimidating at any stage of our lives but if it needs to be made at the time of our divorce it can be even more challenging. What affects our decision is the value of the home in relation to all other marital assets, the individual income of each party, the stage of their lives where they are divorcing, and what they need to do to secure their financial future moving forward. I’d like to address these issues individually.

The purchase of a home when we marry often depends on what we feel we can afford based upon the family income. With the majority of family income coming from dual working couples, at divorce that income can be more than halved. With the housing crash of 2008, qualifying for mortgages have become more challenging. Transferring the mortgage to one spouse can be difficult. If it seems that the decision to keep a home is one to be considered the first step is to be certain that the party considering keeping the home is able to qualify for a mortgage and at what level. It may not be the same level as both incomes could qualify for previously. It will probably require a refinance.

If new financing is involved there are some key factors to consider. A couple’s first step is to review all other debt levels. Is there credit card debt, student loans or personal loans? Who will be responsible for what debt? Divorce often involves a significant mid life change in finances and leaves little room for error. We continue to have responsibilities to our families, have a greater possibility of changes in our health, and may risk greater employment uncertainty. As a result our debt levels, including mortgages, should be approached conservatively. It is prudent to have all debt levels to fall below what we think we can afford. This will affect how much property we can afford and guide us in the consideration to keep our current home and even the home we might purchase. It may cause us to take a step down from what we could afford during the marriage. If it is determined that keeping the home is essential it may guide the division of other marital assets and income. It may drive any spousal or child support discussions. But taking an objective look at our global finances and all contingencies will help us avoid a situation where a change of income might affect our ability to afford our mortgage and force us to disturb other savings.

Evaluating our finances will also give us guidance as to how much we might need for any down payment. If other funds allow, we might make a more significant down payment to reduce our mortgage payments. It could also shorten the time until our mortgage is paid so that it could better coordinate with our plans to retire.

For those of us in the “grey divorce” arena either approaching retirement or in retirement, consideration could be given to a reverse mortgage. Home Equity Conversion Mortgages can help with the division of a marital residence especially if it is a considerable per cent age of the couples marital assets. A HECM is a simple loan available to folks over age 62 that can be taken against the the equity in a home. The proceeds can be taken in a lump sum, as a line of credit or in the form of lifetime income. As a result it can be used to facilitate the buyout of a spouse, the purchase of a new home, or to pay down an existing mortgage. The cost of acquiring an HECM has come down significantly in recent years making them a more realistic means of helping couples divide assets in their later years. Regardless, care should be taken in acquiring a HECM working only with a highly qualified lending professional along with the guidance of a financial planner.

Any decision we make during divorce should be an integrated decision viewed within a long term comprehensive prospective of our overall finances. Home purchases and the mortgages that we use to facilitate those purchases impacts us for years to come. We should take steps to fully understand the implications of those decisions.

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