Legal separation from a spouse is required when wanting to purchase a home. This is important when the largest asset in many relationships, is the matrimonial home. Sometimes, both parties want to sell and buy new homes or, one may want to keep the property and pay their ex.
By law in Canada, you can refinance your home up to 80% of its appraised 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.
But not to fret – Another option is available!
SPOUSAL BUYOUT PROGRAM: If you are going through a separation or divorce, you can buy one party out with a 5% down payment. You must have a legal separation agreement in place spelling out the terms of the separation.
NOTE: A version of this option known as a “Dissolution of Relationship’. This is also available for siblings, friends, or other forms of “joint ownership” – Contact me to learn more!
1. SEPARATION AGREEMENT:
It is imperative to speak with Edmonton’s best mortgage broker early on in this process. All your assets and debts need to be noted in your Legal 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 additional legal fees. Let us guide you so you can each make the best possible start on a new path.
The person staying in the home will need to QUALIFY for the full “purchase” on their own based on income, and credit. We need to ensure that you can debt service the full mortgage, remaining, debts, and possible child/spousal support. Request a mortgage consultation, and don’t forget to bring your Separation Agreement!
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”.
This will 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.
An Offer to Purchase “selling” the home from both parties to the one spouse must be drafted, signed, and provided.
5. CLOSING COSTS:
Just as in a refinance, the “down payment” for this option comes from existing equity. You should be prepared for a whole new set of legal fees, appraisal, and any applicable prepayment penalties charged by the original lender.
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.
• 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.
• 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 accessed for personal use.
If you are going through a separation or know someone who is, please call Edmonton’s Trusted Mortgage Broker at 780-244-0505. I can explain what mortgage options they have available and prepare them 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.