Housing Options After Divorce
I find for many divorcees the decision about what to do with the house tends to be made for more emotional reasons, without a lot of consideration for the financial ramifications. It's really important to try to put the emotions aside when you're trying to make this decision. My name is Brandy Branstetter and I'm the co-founder and wealth advisor at Beyond Wealth, where our goal is to empower you to live your best life. And today we're going to help you do just that. We’re going to be tackling an important topic, and that is what are your housing options available to you after you go through a divorce? So keep in mind that this is really just for general information, and if you would like some guidance on your unique situation, please don't hesitate to reach out. So let's go ahead and dive in.
Housing Option After Divorce #1 - Stay in your current home
The first option you have is you can stay in your current home and it's likely that a lot of the times when you're going through a divorce, your house is probably your largest asset. It can also be one of your largest liabilities. So there are some points to consider if you're wanting to hold on to that house. And so the first thing you need to do is you need to determine why, why do you want to stay in the home? For a lot of people that we talk to a lot of the time, it has to do with kids. So either the kids’ school district is the school district that you want to be in, or you want to stay in that neighborhood because all of their friends still live in that neighborhood. And you feel like if you stay in your family home, you're going to provide some sort of stability for your children, especially when you're dealing with an unstable situation.
Things to consider when deciding to stay in the house after divorce
It is really important to decide why you want to stay in the house. A lot of the time staying there out of spite because your ex-spouse wants to also keep the home is not typically the best reason as to why you should stay there. You need to also consider why you want to stay there post-divorce. So is that house going to be the right size for you? Is it going to be too big or is it going to maybe be too small for you after you're divorced?
After you figured out why you want to stay in your home, the next thing you need to do is you've got to understand if you can afford to stay in your house. If you're assuming complete financial responsibility for your home, that means that not only do you have to pay the mortgage and the interest every month, you also have to pay for property taxes, HOA fees, insurance, upkeep, repairs, maintenance utilities. Do you even know what your normal, typical monthly utilities are? These are the kind of questions that you need to take into account, that way you can calculate that into your budget when you're deciding whether you should stay in your house or not.
Another thing to consider if you're anything like me is I've never mowed a lawn a day in my life and I don't ever plan or intend to in the future. So if you're like me, then you need to add in that additional cost of what you have to pay somebody else to do some of the maintenance and upkeep that maybe your ex-spouse did for you.
Probably the last point to consider is if you do decide to stay in your home, can you afford that mortgage on your own? So with the divorce, a lot of things are changing and that also includes a change in your credit score or changes in the way that the bank is going to look at you to determine whether or not you're going to be a worthy buyer.
A lot of the times when you're going through a divorce and you're dependent on your income only, for approval purposes on lending sometimes your debt to income ratios might be a little too high. So you'll need to consider refinancing that mortgage because you're wanting to get your ex-spouse off of it. And you also need to file a quick claim deed. That way you can remove them from the title of the home. But if you can't qualify for a mortgage on your own income, then you might need to have somebody lined out who can help you co-sign on that mortgage.
So it's really important before you and your ex go into battle on who's going to stay in the home, that if you're going to take on that responsibility, that you have all your ducks in a row, and you understand exactly how you're going to make that happen.
Housing Option After Divorce #2 - Buy a new house
Your second option is you can buy a new house. There are certainly financial and psychological reasons for wanting to change your living situation after divorce. It's logical that you can find a new place with a fresh start and it can be enticing to possibly move to a new place that serves your needs a little bit better. With a new home, if you are looking at something a little bit less costly than your family home together, you could actually save money by having a lower mortgage payment on a new house, or if you have really great credit you could actually possibly lower your mortgage payment just because you could qualify for possibly a better interest rate. You could also move to be closer to the people that are really important to you.
A lot of the time, your support group (your parents, your siblings, your friends) have moved to different areas of the city, and maybe you want to buy a new house so you can be closer to those folks. Also, if you plan to stay in this second home for a long time, just know that you're purchasing an asset that can also build equity for you to be able to use later on down the road.
Things to consider when deciding to buy a new house after divorce
Those are all the pluses of maybe looking at buying a new home for yourself, but keep in mind when you're looking at a new house, don't forget to consider that there are really high upfront costs in doing so. You're going to need not only a down payment but you're also going to have to have money for closing costs. While most lenders can probably get you into a new house for maybe around a 5% down payment, a lot of the time, if it fits your situation, we'll recommend to our clients to try to put down at least 20%. That way you don't have to pay the mortgage insurance and have your money going towards something that's really not providing you a lot of benefits.
Also, don't forget about how much you'll need to spend on things like moving costs and new furniture and also any immediate updates or changes that you want to do in this new house that you found. Keep in mind, anytime you buy a new home, there's always little fixes here and there, and even a can of paint and supplies can start to add up if you've not added that into your budget when considering if you can afford to move into a second house.
It's really, really important if you're looking at this option that you're looking at your current cash flow and your other financial obligations that you have to make sure that you can afford this and moving to a second house makes sense for you.
Housing Option After Divorce #3 - Renting a home
Finally, the third option that you have available to you is renting, and renting is actually often an excellent option for people. Especially when they're going through a divorce by renting an apartment you are able to provide yourself with a little bit more flexibility as you start to settle into your new life and not being tied down to one area can give you that freedom and that space for you to consider if the area you're in is going to work for you going forward. Renting, even temporarily, can also give you that space to figure out what your new life is going to look like, and what you want to have for yourself without locking you into a house that might not be the best option for you, maybe even a year or two down the road.
Another plus about renting is that you definitely do not have to worry about some of the upkeep and maintenance that goes along with owning your own home. And so if you take that into consideration, a lot of the times I hear from clients, they say, “Well, renting is more expensive. I could buy a house and my mortgage payment would be less than my rent payment.” But, keep in mind when you rent you're not paying for property taxes. And a lot of the times you don't have the upkeep, the maintenance, and all of those expenses that come with homeownership.
A lot of the time renting the right place can also free up your monthly cash flow. So then that way you can either pay down debt or you can start saving that nest egg for when you are ready to possibly purchase your next house. You have that freedom and cash flow to hold yourself accountable to those financial obligations or achieve those financial goals that are really important to you.
Beyond Wealth can help you find the best housing options after divorce
Now is the time to start creating a plan that reflects the unique vision that you have for your life. Divorce can be emotional and the quicker that you can make some of these important financial decisions with confidence, the quicker you're going to be able to move forward and get a fresh start on your new life. Our team is here to support you through each step of the way. We would love to speak with you and talk about your unique situation. You can give us a call today or send us an email to set up a free introductory phone call.
Brandy Branstetter