What is a Spousal Buyout?
Updated: Nov 23, 2022
A Spousal Buyout is a financial solution to buyout an ex-spouse ownership to the house so that one of the spouse can own the martial house 100%. This is usually invoked as part of a Separation Agreement process for a couple who are parting ways moving forward and need a fair solution without selling the house altogether. Borrowers can do this through refinancing or paying the remaining balance and equity in full.
Refinance or pay the remaining balance and equity in full to buy out your ex-spouse
Refinancing or paying the remaining balance and equity to buy out the former spouse can be a great option to keep the house after the Separation Agreement is complete. But if the borrower who is staying in the house has the financial burden of a divorce, he/ she may want to get professional advice first. A local divorce attorney will be able to help draft the necessary agreements and coordinate the logistics. He / she can also work with the local mortgage broker to ensure that their rights are protected.
The refinance option requires a low loan-to-value ratio and solid credit. Another option is to take a home equity loan to pay off the ex-spouse's mortgage.
To Sell or To Keep
One should consider whether they want to stay in the material home after the Separation Agreement or Divorce is complete. The transition may be difficult for adults and children. But if it's very important to one of the spouse to stay in the material home, it's important to know that there are options that will help him / her achieve this objective. One popular option is to remove the name of the ex-spouse from the mortgage and replace it with another name as equal owner.
Mortgage financing after the divorce is another solution that will remove the name of the ex-spouse from the mortgage. The mortgage will then be in one name only. This means the ex-spouse won't be legally liable for the mortgage payments.
Buying out the ex-spouse can reduce spousal support payments
A buyout is an agreement between two separating individuals from being a spouse in which the one leaving transfers ownership to the marital house in exchange for a reduction in spousal support payments. These buyouts reduce monthly payments in two ways: by reducing the amount to pay and the duration of support.
Another way to reduce spousal support payments is to sell the marital home altogether. This could be a desirable option because on their own, the costs of home maintenance can quickly add up.
Requirements for a spousal buyout
Before deciding to buy out the ex-spouse's house, speak with a mortgage broker to figure first figure out how much equity available in the house. A good way to find out the value of the house is to get it appraised by a professional. It's not a reliable estimate to use online home value estimator tool to get an idea of how much the house is worth.
Then it is important to get the divorce decree, related settlement agreement and quitclaim deed in order with a family lawyer. The mortgage broker will require these documents for mortgage underwriting process.
The first step is to get the house valued. This can be done by an independent home appraiser not a real estate agent. This will give an idea of what the house is worth and how much equity in the house to buy out the ex-spouse. Once the value of the house has been determined, both parties will have a clearer idea of the amount of the buyout.
Second, the spouse staying as the owner of the marital house must be financially stable to qualify for a spouse buyout. This is a lending requirement for refinancing the property. Banks will not allow one person to assume another's loan until the borrower can carry the debt burden without going default. So it is imperative that one buying out have the means to do so. If the person buying out does not have an excellent beacon score, he/she can consider working with an alternative mortgage lender to qualify for a spouse buyout mortgage plan.
Lastly, before negotiating a buyout, both parties need to determine what each person would be willing to pay for the marital home. A spouse buyout must be mutual, and it should be agreed to both parties. Consider working with a family lawyer and mortgage broker to make sure the entire process is smooth and confidential.