3. Your home costs more than just the mortgage, taxes and insurance.
In order to know whether you can truly afford to keep your home, you have to factor in other costs, too.
You have to think about the cost of maintenance and repairs. There is a big difference between keeping a newer or recently remodeled home, and keeping a home that is likely to need major repairs soon. If your roof, furnace, or any major appliances are old and may need to be replaced, you MUST have a chunk of money set aside to deal with those issues when they arise.
If you own a condo or a townhouse, you have to include the cost of your homeowner’s association dues. Plus, you also need to consider whether any special assessments are likely to be imposed on you in the near future.
You would also be wise to consider the non-monetary costs of home ownership. Houses need to be kept up. You will have to spend time cutting the grass, shoveling the snow, doing the yard work, and taking care of the house. If you’re not up for doing all of the extra work, and you can’t afford to pay someone else to deal with those tasks, home ownership can be a real burden.
4. The only way to really know what your house is worth is to sell it.
One of the biggest bones of contention in many divorces is the value of the marital home.
The person who wants to keep the house in a divorce always thinks it is worth less than the person who wants to sell it. Each side gets his/her own appraisal of the home’s value. Then you fight over what the house is really worth.
The problem is that the only way to really value a home you are not going to sell is through an estimate. Even a certified appraisal is only an estimate. The true value of any home is what someone will pay for it in a real sale. Period.
If you sell your house, you know it’s value: the sales price. If you keep your house, you and your spouse ultimately have to agree on its value. Or, a judge has to decide its value for you. Either way, someone can get the short end of the stick. If you or your spouse wants to keep the house, you both have to be willing to accept that fact.
5. You don’t have a crystal ball.
Before 2008, everyone assumed that real estate prices would always go up. We all know now that’s not necessarily true.
While today’s real estate market seems to have stabilized, there’s no guarantee that your house will be worth more when you sell it than it is today. If you haven’t bought in the right place at the right time, you can still lose your shirt in real estate.
If you sell your house now, you and your spouse will share the risk from the sale. Either you both lose, or you both win.
If one of you keeps the house, that person will bear the whole market risk from the date of the divorce forward. If the house dramatically increases in value, the person who kept it wins. But, if the value of the house drops, the person who kept it will eat the whole loss him/herself.
6. If you’re going to keep the house, you’ve got to be able to refinance the mortgage.
If you and your spouse took out a mortgage on your home together, the only way to get your spouse’s name off the mortgage is to refinance or sell the property. Most mortgage companies won’t just take your spouse’s name off the mortgage because you are getting a divorce. They also usually won’t let one of you “assume” the mortgage as it is. You must refinance.
Depending upon your financial situation, refinancing your mortgage may not be feasible or desirable. When you refinance your mortgage, you have to do so at the current interest rate. That means you will lose the benefit of whatever interest rate you have right now.
You also have to find out whether you CAN refinance. If the spouse who wants to keep the house doesn’t have a high enough income to get a mortgage, you might not be able to refinance your home. Then, the only way to keep it will be for both of you to remain liable on your existing mortgage. Doing that can cause a lot of problems.
If your spouse stays on the mortgage for the house that you’re keeping, your spouse probably won’t be able buy his/her own house in the future. What’s more, if you miss a mortgage payment, or your payment is late, that will affect your spouse’s credit rating, as well as yours. For all these reasons and more, if you can’t refinance your home, your spouse may insist that you sell it.
Figuring Out If You Should Keep the House in a Divorce
Deciding whether to keep the house in your divorce is intensely personal and highly complex. It’s a decision that has as much (or more) to do with emotion as it does with money.
But, if you let your emotions make your decision, you may very well end up making a bad one.
Keeping the house “for the kids,” is great. But, if you keep the house today, only to lose it to foreclosure in a year or two, your kids will NOT be better off. What’s more, keeping a house you can’t afford will only continue, or increase, the financial misery you suffered in your divorce.
Before you can decide whether to keep the house in your divorce, you must honestly evaluate your financial situation. You have to talk to a mortgage broker and find out whether refinancing the house is possible. You should talk to a financial planner to find out whether your new payments will be affordable.
Armed with solid financial facts, you will be able to decide whether keeping the house in your divorce is truly your best choice.