What happens to a residence in a divorce?
William called me a few weeks ago to tell me that he is breaking up with his girlfriend. He wants to buy her part of the house they bought together 3 years ago. I had negotiated their initial mortgage, so I was in a good position to help them. We met the next day to discuss the situation.
The price of the home 3 years ago | $250,000 |
The down payment made by William | $10,000 |
The down payment made by his ex-girlfriend | $15,000 |
Remaining balance on the current mortgage | $215,000 |
The market value of the home today, as established by an appraiser. | $290,000 |
The notary fees (quittance) | $480 |
Note: All the renovation costs and mortgage payments were split equally between them.
Step one: Determine the buyout price using the following formula:
(Market value – total down payment- balance left on the mortgage)/2 + down payment made by the ex-partner, plus half of the notary fees (quittance) = buyout price.
($290,000 – $25,000 – $215,000) /2 +$15,000 + $225 = $39,760
At this point, we must consider what would happen if the house was simply put on the market and sold. This option would include agent’s fees and penalties for canceling the mortgage. In William’s case, the mortgage was up for renewal anyway (so no penalty would be paid in either case), but the notary and agent fees would have to be subtracted from the market value. Thus, by remaining in this home, as opposed to selling it and buying another one, William is saving almost $20,000 in agent commissions, notary fees, and moving costs.
After reviewing the options, I negotiated a new mortgage for William for $260,000, permitting him to pay the existing $215,000 mortgage and leaving a balance of $39,760 to reimburse his ex-girlfriend and pay the remaining notary fees.
William separated unfortunately, but the upside is that he is now the sole owner of his house and did not have to move. We wish him the best of success, and lots of love and happiness!
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