Divorce: Your Mortgage and Home
Divorce is always a very difficult time, and the changes to the mortgage rules over the last few years have made it even more difficult. For the most part, one spouse will want to remain in the home and will need to buy the other out of the remaining equity.
Currently, the most one can refinance is 80% of the value of the home. This leaves 20% of the equity unavailable for the buyout and is forcing the sale of the home. Because of this, both insurers (CMHC and Genworth) will consider a Marital Home Buyout up to 95% of the value of the home. The deal is packaged as a ‘purchase’ and the spouse remaining in the home becomes the buyer on the purchase.
Marital Home Buyout:
- Refinance the home conventionally (up to 80% of the value of the home).
- One party can refinance the property conventionally. This person will need to qualify for the mortgage and any other liabilities on their income alone.
- Refinance through CMHC or Genworth’s Marital Home Buyout program.
- Qualified clients can refinance the home up to 95% of the value of the property.
- CMHC’s spousal buyout program will allow the equity to be used only to payout the spouse and not any other debts or penalties.
- Genworth will allow the funds from the refinance to be used to pay off other matrimonial debts and mortgage penalties a long as they are specified in the separation agreement
- For refinances over 80% loan to value, clients will be subject to insurance premiums. If the mortgage was originally CMHC or Genworth insured, clients might just face a smaller top up premium. If not, a full premium will apply.
At the time of mortgage approval, in addition to income verification and other standard conditions, lenders will require the following:
- Divorce/Separation Agreement. Lenders will not finalise a mortgage approval until there is a legal agreement in place outlining the split of assets. This protects both the lender and the client as a soon to be ex-spouse could make a claim against any assets in your name.
- Proof of support payments. If there are child or spousal support payments and these are needed as income for the buyer to qualify, further documentation will be required. The payment amounts should be specified in the Separation/Divorce Agreement and lenders will require a minimum of 3 months’ worth of bank statements showing the support payments are being made/received consistently on the same day each month and for the same amount.
- An Offer to Purchase between the two spouses for the subject property (in the case of spousal buyout)
- An Appraisal will always be required in the case of a spousal buyout. As this transaction is not an Arm’s Length Transaction the lender or insurer will order an appraisal to be completed on the property to confirm market value. In the event of a refinance, the appraisal requirement can sometimes be waived, depending on the loan-to-value ratio.
If you are facing a marital breakdown, make sure that you reach out to your trusted Jencor Mortgage Advisor to make sure you have all of the information you need to make the right decisions regarding your mortgage and your home.