Refinance or sell after a divorce?
A divorce can be one of the most damaging things to happen to your finances.
Not only is divorce expensive, but the financial burdens on both husband and wife can lead to debt, foreclosure and even bankruptcy.
One of the many questions that arise during a divorce is what will happen to the family home.
Many homes are owned jointly, and this can often create problems during a divorce.
If the marital assets are split evenly, this becomes tricky where the couple’s home is concerned. After all, how do you split a house?
There are two common options that wind up in a divorce settlement:
Sell the house.The drawback is you could lose more money selling the house than you are by keeping it.
While the timing is never right, because the real estate market is depressed, you might sell your home for less than you bought it, particularly if you purchased the home at the peak of the market last decade.
And selling the house does not even take into account the fees, closing costs, and the price to get the house ready to be sold.
Refinance after the divorce. The alternative to selling the family home after a divorce is for one of the parties to keep it.
A husband or wife could keep the house by essentially buying out the other person's share of the equity either by paying with savings or through a cash-out refinance home loan (although lenders are more reluctant to do these types of loans today).
The party not staying in the home can transfer equity and change the name on the deed by signing a quitclaim deed. But you will need a new mortgage to change the name on the loan.
Signing a quitclaim deed and refinancing the home into only one person’s name can save time, money, and more headaches in the end.
Because mortgage rates are so attractive right now, you could save thousands in interest payments by refinancing (assuming you can qualify based on your own income and credit history and you have enough equity built up), and also provide the person staying in the home with the cash needed to evenly divide the couple’s assets down the middle with one party keeping the home.
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