When a relationship ends and you own a home together, one option may be for one spouse to remain in the property and buy out the other spouse’s interest. This is commonly referred to as a spousal buyout.  There are legal considerations involved, but there is also an important financing question: Can the person keeping the home qualify for the mortgage needed to complete the buyout?  This is where your mortgage broker becomes part of the process.

Step 1: Understand the proposed buyout.
Your mortgage broker starts by gathering the financial details: the existing mortgage balance, approximate property value, proposed buyout amount and any other financing that may be required including any application child or spousal support payments.  The broker does not determine how the property or equity should be divided. Those decisions should be addressed with your lawyer, mediator, or other appropriate professionals.

Step 2: Review mortgage qualification.
If your plan is to keep the home, the next step is determining whether you can qualify for the required mortgage financing.  Your broker will review the information lenders typically require, including income, employment, credit, and existing debts. This helps establish what may be financially possible before the transaction moves too far ahead.

Did you know that a spousal buyout is considered a purchase and financing options can extend past those of a standard refinance.

Step 3: Confirm the property value.
The lender may require an appraisal to establish the home’s current market value. This is an important part of determining the available equity and the amount of financing that may be considered.

Step 4: Review the available mortgage options.
A spousal buyout is typically treated differently from a standard mortgage refinance. Depending on the circumstances, lender and mortgage insurer guidelines can affect the amount of financing available and the documentation required.  Your broker can review appropriate lender options and explain the requirements that apply to your situation.

Step 5: Gather the supporting documents.
The lender will require documentation confirming the terms of the buyout, along with the usual mortgage qualification documents. The exact requirements will depend on the lender, client, and, where applicable, the mortgage insurer.

Step 6: Coordinate the financing.
Once an appropriate mortgage solution has been identified, your broker submits the application, works through lender conditions and coordinates the mortgage requirements with the lawyer or notary completing the transaction.

Starting the mortgage conversation early can help!  Understanding what you may qualify for can provide useful financial information while decisions about the property are being made.

If you are in a position where a spousal buyout is something that you are considering, we can help you understand the mortgage process, determine what financing may be available and outline the steps required to move forward.