Wednesday, November 23, 2016

Your relationship is over and you want to keep the house. What happens now?

Fortunately, there is a program offered by Canada’s mortgage default insurers (CMHC, Genworth & Canada Guaranty) to help you buy out your partner and move on with your life.

Mortgage qualifying rules have changed so it’s best to contact me, right away, to ensure that the numbers will work for you to qualify to take over the house, using only your income. We’ll complete a mortgage application and see how things look.

I will need to know what your house is worth today. If you aren’t sure, this is a good opportunity to contact your Realtor and ask them to estimate what it might be worth.  A requirement of the new mortgage will be an appraisal on your property, which will happen later. To start, I just need a realistic estimate of the value of your home.
Take the value of your home and multiply it by 0.95. This is the maximum amount you can finance through the new mortgage.

If everything looks good, you’ll need to provide me with a signed separation agreement that clearly outlines who pays who (child support, spousal support, buy out amounts etc). The marital home needs to be addressed in the agreement. It should state who is keeping the house and what happens if you cannot qualify for the mortgage by a certain date (house will be sold etc).

Your file will be sent to a lender for approval. The maximum amount you can finance is 95% of the value of the home. The new mortgage will pay off the existing mortgage on the house, as well as the buy out amount and possibly some marital debts (they must be detailed in the separation agreement). Typically, legal fees cannot be included in the new mortgage.

So, as an example: 

Your house is worth $400,000. 95% of $400,000 is $380,000. This is the maximum amount you will be able to borrow.

You currently owe $330,000 on your existing mortgage and the penalty to pay the mortgage is $5,000. Typically, couples will split the penalty amount. Your portion of the penalty can be included in the new mortgage; if it is outlined in the separation agreement.

You have agreed to split the equity in your house, with your ex. Your equity is the difference between what your home is worth and what you owe.

$400,000 value of marital home
-$330,000 Mortgage balance
-$5,000 mortgage early pay out penalty
$65,000 equity/ 2 people =$32,500 each

Based on the above example, we would set your mortgage up for $365,000 ($330,000 mortgage + $2,500 your portion of the penalty + $32,500 buy out to your ex). This loan works out to 91.25% of the value of your home which falls within the allowable amount (under 95%).

I hope that helps to clarify this program. Separating from your spouse can be extremely stressful and convoluted. My best advice is to make sure your agreement covers the amounts that need to be paid in clear detail. If it isn’t included in the agreement, then my lenders will not allow me to add it to the new mortgage. It is important to also make sure that your agreement explains what will happen if you are not able to obtain the mortgage.

If you are currently going through a separation, and are thinking of keeping the home, or purchasing a new one, please contact me at 780-722-6287! 

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