Spousal buyout mortgage

You might be going through or considering a separation or divorce, but the end of a relationship does not necessarily mean that you will have to sell your home.

Your home may be able to give both partners a new start.

For many, your home is your largest asset and where most of your net worth has accumulated.

There are mortgage products available that can allow you to buy out the other party while enabling you to stay in your home. A divorce or separation doesn’t always mean you will have to sell your property.

You will require a finalized separation or divorce agreement as that is required by the lenders and the agreement needs to clearly detail the asset allocation and any joint debts that need to be cleared.

The mortgage funds can only be used to buyout the other party’s equity the home unless it is clearly laid out in the separation agreement that some joint debts need to be paid out to a maximum of 95% of the value of the property.

The property must be your primary residence.

Sometimes friends or siblings have bought a home and live together in the property. This program may be used in that circumstance also but this will require an exception for an approval by the mortgage insurer.

There are insured mortgage programs available that could help you stay in your home in the event of a separation, divorce or dissolution of a relationship by purchasing the home from your ex-spouse or partner for up to 95% of the home’s value.

To qualify for this program you must be able to afford the mortgage payment on your own along with your other liabilities. Not only must the lender approve your application but also a mortgage insurer.

Both parties must also be on title on the home prior to the separation.

There are some differences between two of the programs.

With the first mortgage insurer the funds can only be used for a spousal buy-out or the dissolution of a relationship. This could be friends, relatives, etc. There cannot be any matrimonial debts or pre-payment penalties or fees included in the new financing.

With the other mortgage insurer the funds can only be used for a spousal buy-out and no other relationship breakdown, but the new financing can include matrimonial debts if they are listed on the separation or divorce agreement. They will also allow pre-payment penalties and fees to be included.

To qualify for both of these programs you must have good credit and earn sufficient income to support the mortgage payments.

It’s so important to seek the advice of a mortgage broker very early in the process as we can guide you along the way to a successful separation so you can both have the best possible outcome going forward.

If you already have a separation agreement in place we can show you how the value in your home can make it work out for you both.

If you have any questions on this program please give me a call at 1-888-561-2679 or email [email protected]. All inquiries are kept strictly confidential.

Credit repair action list

As a mortgage broker, it is my business to help you get the best rate and terms for your mortgage.

Many don’t understand the importance of a credit rating that can affect their ability to get the best mortgage rates. If you have large credit card balances, too many accounts or have missed making some payments, you probably have some strikes against your credit score.

Here are some credit management tips for making sure that you get the best possible mortgage rate.

Get a copy of your credit report.

You need to know what your credit issues are before you can begin to work on credit repair. You can receive your credit report for free via mail or order on-line from TransUnion here or from Equifax here.  

You should check your report carefully. Are there any errors? Be sure to contact Equifax or TransUnion to have these corrected.

Make your payments on time.

Always, always pay your credit card(s) and other obligations by their due dates and that includes your cell phone bill. Collections stay on your record for six years. Even after you pay them off, they will not disappear.

Focus on your payment amounts.

If you can’t pay the balance in full ensure that you pay at least the minimum payment required. Paying more will save you interest charges.

Have a buffer between limits and balances.

Know the limit on your credit cards and try to keep as far below that limit as possible. The higher your balance, there is an increasing negative impact on your credit score. Try for a balance that is no more than 30% of your limit.

Limit your credit cards.

Try to have no more than three credit cards. Use them occasionally, and pay them off promptly. Keep your oldest and most established account open, even if you no longer use it as it’s an important part of your credit history.

Avoid applying for credit.

Be careful; applying for new credit can hurt your credit report. If you are rate shopping, make sure you shop during a focused period of time (recommended 15 days maximum.)

Build a credit history.

Some people think they have great credit because they have never needed or used a loan or credit card. Unfortunately, that is incorrect. Someone who has no credit history is usually viewed as riskier than someone who has credit and manages it responsibly.

Be proactive.

If your debts get ahead of you, contact your creditors and work out a payment plan with them. They want to know you are concerned and take it seriously. This can help avoid collections which will have a long term negative impact on your credit.

Borrow wisely.

Credit cards can be a trap. Ask yourself "do I really need this?" before purchasing if you are using credit.

Protect your credit.

It’s your passport to financial opportunity. You’ll be rewarded with better rates and faster approvals.

If you are someone who monitors your credit score that’s great. Scores available at some of the online services are a great reference but these scores are now what we use for mortgage lending when a lender assesses your qualifications for a mortgage.

Sometimes the score at the lender and mortgage broker side can differ significantly from the score you see as a consumer as we use a system that includes far more variables in determining the Fico score used for mortgage lending.

As your mortgage broker, I will do a full credit review and let you know if there are any areas that need to be worked on prior to applying for mortgage financing.

Sometimes a few simple steps can greatly improve a credit score so please reach out to see if you need to do a little work on your credit in order to qualify for a mortgage.

Reverse mortgage safeguards

There are many misconceptions surrounding reverse mortgages. There are only two reverse mortgage lenders in Canada and both of them have safeguards in place to ensure that the equity in your property is kept safe and secure.

Here are the four most common misconceptions about reverse mortgages in Canada. Let’s bust those myths.

  1. You will always retain title and ownership of your home. Just like a regular mortgage, your home is used to secure the loan – and either of the banks will register a charge on the title of the property – you do not transfer home ownership to the bank.
  2. Lending amounts are conservative. The reverse mortgage lenders will only lend up to 55% of the value of the home, while factoring in the homeowner's age, property type and property location. The older the client, the higher the loan amount they can qualify for. This is done so that the reverse mortgage never exceeds the value of the home.
  3. Homes typically appreciate in value. The total value of your home is likely to appreciate over time, especially if it is located in a major city. Meanwhile, only the interest on the borrowed amount accrues. Based on that differential, even a modest home appreciation allows for equity preservation. This is why over 99% of homeowners have money left over when their loan is repaid. 
  4. No negative equity guarantee means loan can never be more than the sale price of the home. Many people think that if their home equity depreciates at the time of sale, they/their heirs will end up owing more than the house is worth. However, one of the lenders guarantees that if the home depreciates in value and the mortgage amount due is more than the gross proceeds from the sale of the property, the lender covers the difference between the sale price and the loan amount (as long as the property taxes and mortgage obligations are met and it does exclude administrative fees and the interest accumulated after the due date).

As your mortgage broker, along with the lenders, I am focused on preserving your equity. That's why the lenders have built these safeguards into the reverse mortgage products to ensure that you will not be at risk of losing your home when accessing your home equity. 

Please contact me to find out more about how a reverse mortgage is actually a great way to improve cash flow, while allowing you to stay in your home. Together we will compare the products of both reverse mortgage lenders and also review other possible mortgage options for you to accomplish your goals. We will help to find you the right solution while making the process as stress free as possible.

Buying in today's market

The most recent stats from OMREB (Okanagan Mainline Real Estate Board) confirm that we are still in a buyer’s market in the Central Okanagan. There definitely feels like there has been some pent-up demand given the COVID-19 situation. It’s been busy the last couple of weeks as more and more buyers seem to be out looking at homes. This will no doubt create more competition for the available properties.

If you are in the market for a home right now or are considering a purchase this spring, here is my tip to increase the odds of you being the successful bidder in a possible multiple-offer situation. By taking these steps you might avoid some of the craziness that could happen this late spring market.

This is my best tip and easiest tip. Get pre-approved for your mortgage financing. Not pre-qualified but a full pre-approval.

Prior to looking for a home or placing an offer, work with your mortgage broker to complete a full mortgage pre-approval. This will include the collecting of all supporting documentation that a lender will require to provide a final approval for your financing. We will advise you of your purchasing budget, review any potential challenges, and ensure you are set to go – other than finding a suitable property.

We can also review the types of properties you are interested in and advise whether there might be any potential financing challenges because of property issues.

If you do all the work upfront, it could prevent your offer from falling apart because you were not able to secure financing for your purchase or possibly losing the property by needing to request an extension to finalize your financing, which the seller may not be prepared to offer because there are backup offers on the property.

The lenders have made some adjustments to their policies and guidelines and even pulled some programs due to COVID-19 so it’s more important than ever to ensure you are pre-approved. It’s an ever changing mortgage market, and lenders along with the mortgage insurers have policy updates occurring almost daily as they adjust to our new environment.

But a word of caution – do not be tempted to place a ‘subject free’ offer. ‘SUBJECT TO SATISFACTORY FINANCING’ is a key clause that needs to be included in every offer. You could be the most well-qualified purchaser in history. Stellar credit, great income and job stability with a significant down payment, but in the end, a lender could still decline your request for financing.

Here’s why: mortgage financing approval not only includes the lender being happy with your qualifications but they must also approve the property. Essentially, it’s a two-step process.

My best advice to you would be to never place a ‘subject free’ offer regardless of what others are recommending and to think long and hard about it unless you have the cash in the bank to cover your purchase in the event that you can’t secure satisfactory financing.

Or have a detailed conversation with your mortgage broker well in advance to place a ‘subject free’ offer. There are some strategies to minimize your risk but an individual conversation would be required.

In our current market, you need to be prepared to be successful, so please give me a call to review your options and get pre-approved.

More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories