Sadly' statistics indicate that 52 percent of marriages will end in divorce' which begins the process of financial shuffling' adjusting to a particular earnings and adapting to the routine of a particular parent. Any one of these changes could be carefully quite an undertaking' but when you consolidate the three' the typical response is intense emotions' stress and obscuring - none of which have any place in serious financial decisions.
A Divorced Mother's View
As a divorced mom with over 14 years of divorce linked mortgage and financial experience' the biggest mistake I see divorcing couples - especially the custodial parents - make' is not getting their finances in order and realistically determining their potential to afford the home before the divorce process begins or at least from the onset of the proceedings. This is step one in ratcheting down the stress where finances are concerned.
If this strategy is followed it affords the parties the option to alleviate joint marital debt and helps found financial security for the children as well as reducing the financial burdens of the consolidate so that they can begin what I call the post-divorce recovery phase.
Whether you decree to stay or go' each decision comes with its own unique set of adjustments. If you would like to keep the house home' it's prominent to be sure you can afford the price of the mortgage in expanding to the other expenses' including maintenance' upkeep, utilities, taxes and insurance. A cash cushion' even if it's small' is also a must since unexpected expenses are a given and can derail even the most well-prepared funds putting you in a position of having to play catch up at a time when you can least afford it. If you decree to sell' you must consider where you will live and what financial preparations need to be made for a smooth transition. An further observation is equity in the home.
Divorce Home Refinance Options
In a divorce' a whole of scenarios may be presented to you with regard to the department and payment of home equity. One is that the parent retaining the home will have a designated whole of years to refinance and pay their old spouse his/her portion of the equity.
A second option is that the parent retaining the home may remain there with the children until they graduate from high school' and at that point the home is either sold with the equity divided or the custodial parent must refinance and pay the old spouse his/her equity. Any way there is one caveat here: Be mindful of when the value of your real estate will be carefully since real estate values have dramatically changed over the last three years. And other option is to refinance the home at the time of the divorce and pay your old spouse at that time. If this is done,the custodial parent owns the home outright and no future financing will be required.
Each of these scenarios plays a separate part in how to go about making ready for a refinance. But whichever is the case, it is a necessity to consult with a knowledgeable' mortgage professional who is extremely experienced in divorce linked refinance transactions before you begin signing mortgage applications to avoid manufacture mistakes that could be high-priced and may even prevent you from obtaining financing the financing you need. It should also be noted that as of May 2009, federal lending guidelines changed, prohibiting the use of independent appraisals for all real estate transactions which means that banks and lenders now designate the real estate appraiser from their own databases. Based on this new law, if you need to derive a value of your home, but are not refinancing, I suggest obtaining a store determination from a licensed realtor which will prevent you from spending colse to 0.00 unnecessarily.
Divorce is mentally and emotionally draining and unfortunately for many' it can mean suffering financially as well if you neglect to take the right steps prior to manufacture any final decisions. Therefore' anyone you decide' it is prominent to do your homework' have a plan ready to implement and excerpt your emotions from the equation when manufacture your financial decisions.
If you want to support your home you will need to be financially savvy to your earnings vs. Expenses ratio. Keeping in mind that you are now a particular parent and a particular homeowner' you need to restructure your finances to keep it straightforward through the post-divorce transition period. In other words' your monthly expenses should be proportionate to your earnings with minimal consumer debt such as credit cards or installment loans.
Start by calculating your usable' after tax monthly earnings by including your weekly pay' Child support or Alimony (if applicable - either paying or receiving) and any other sources of consistent earnings such as rental income' annuities' etc. This is the starting point to determining your potential to afford the home with the next step being a consultation with a financing expert. The home mortgage commerce has now become extremely evaporative and many financially advantageous programs for particular parents/homeowners' are simply no longer ready which can make the discrepancy in the middle of being able to stay and being forced to sell.
If you decree to sell, hopefully you and your soon-to-be-former spouse have decided how you will split the equity. The first step, as I mentioned above is to decree the store value of your home. At this point you have two options: List the home with a Realtor or sell it yourself as a For Sale By Owner (Fsbo) property. Listing with a Realtor will spare you the time and work of selling for a commission paid to the Realtor' which can range from 3 to 6 percent, and is deducted from the total equity proceeds. If you sell the home yourself, be prepared for a lot of work since you will be responsible for advertising' showing the home and fielding the calls. This is time enthralling and can unquestionably add to your stress. I suggest consulting with a Real Estate Attorney for the specifics of selling yourself and a tax preparer for facts on capital gains and tax implications if applicable.
Another very important' and often overlooked aspect of post-divorce financial recovery is your credit rating. Most individuals' understandably' do not have a sound grasp on credit, how the ideas works or exactly what factors influence their credit scores. It can be damaging if operation is taken' like closing accounts' without the knowledge of how to go about it in a way that will minimize the negative ensue on your credit rating. Even though joint marital credit accounts need to be terminated it is prominent to minimize the ensue of this operation on your credit scores.
Whether you are refinancing your existing home or will be purchasing a new one' your credit scores and mortgage payment history will be the biggest deciding factor in determining your creditworthiness and what interest rate you will pay. So my guidance to my clients is to pay their mortgage on time' every time. The time you take to get ready when you are going into a divorce can greatly minimize the damage of quick' impulsive decisions that could prevent you from starting over from a position of financial advantage. It may seem like more stress at a time when you unquestionably need less' but the benefits far outweigh the effort.
Stay Or Go - disjunction and Your Home