Separating from a spouse is emotionally draining and this is often compounded when the largest asset in many relationships, the matrimonial home, is a factor. Sometimes, both parties want to sell and buy new homes but other times, one person may want to keep the home and pay their Ex out for his/her share of the equity.
By law in Canada, you can refinance your home up to 80% of it’s value. As the amount that can be taken out may not be enough to “buy-out” the other spouse, pay off joint debts, AND keep the minimum 20% equity required in their home, this can cause an issue.
But not to fret – Another option is available!
Through the SPOUSAL BUYOUT PROGRAM, if you are going through a Separation or Divorce and have a Separation Agreement, you can increase your loan amount up to 95% of your home’s value!
(NOTE: A version of this option known as a “Dissolution of Relationship” is also available for siblings, friends, or other forms of “joint ownership” – Contact me to learn more!)
STEPS:
- SEPARATION AGREEMENT:
It is imperative to speak with a Mortgage Broker early on in this process as your assets and debts may need to be noted in your Separation Agreement in a very specific way (example – car loans or Line of Credits may need to be noted as “joint” marital debt). This, in turn, can prevent having to make amendments to your Separation Agreement, which can reduce the chances of incurring any additional legal fees. Let us ensure that the two of you can each make the best possible start on a new path.
- PRE-QUALIFICATION:
The person staying in the home will need to QUALIFY for the full “purchase” on their own based on income, credit, etc. To ensure that you can debt service the full mortgage remaining, debts, and possible child/spousal support, request a mortgage consult and don’t forget to bring your Separation Agreement!
- APPRAISAL:
In a sense, one spouse will be “selling” the home to the other. This allows you to go back to the rules where you only need 5% down to “buy”. However, as we all have opinions on what our house is “worth” and this will be a “non-arms length” transaction, Lenders will request a full appraisal to confirm the new “purchase price”.
- DOCUMENTS:
Be aware that this will now be like a new purchase so we will need all the standard documents to confirm income, employment, and funds. Some of the documents we will ask for are your last 2 years of tax documents, latest pay statements, Letter of Employment, and ID.
Also, an Offer to Purchase “selling” the home from both parties to the one spouse must be drafted, signed, and provided. Templates for an Offer to Purchase can be found here or here.
- CLOSING COSTS:
Just as in a refinance, the “down payment” for this option comes from existing equity but you should also be prepared for a whole new set of legal fees, an appraisal, and any applicable prepayment penalties charged by the original mortgage Lender.
Also, if your mortgage had originally been insured (ie. CMHC), then we may be able to get away with just a top up of your mortgage default insurance premium! This could result in thousands of dollars of savings. However, if the property had not previously been insured, mortgaging up to 95% will trigger a full insurance premium.
EXTRAS:
- This option is only available for the MATRIMONIAL HOME and not investment properties;
- Both parties must be on Title PRIOR to the Spousal Buyout application; and
- We will need to follow exactly what shows on the Separation Agreement. Especially if we are wanting to “top up” a previous mortgage default insurance premium, the Agreement must spell out exactly how much in funds will be taken out for the fair division of marital assets. If after paying out your Ex there is still equity remaining that can be taken out (ie. if you were at 90% instead of 95% after paying out joint debts and matrimonial division), but this amount was not mentioned in the Separation Agreement, this extra amount cannot be taken out for personal use.
If you are going through a separation or know someone who is, please call me at 780-863-0700. I can provide them what mortgage options they have available and prepare for any new financing you may require. I am also able to connect you to Real Estate Professionals that will provide the pre-listing service you require and advice you need to sell your home quickly.
minnja 