What Is a “Buyout?”
Going through a divorce is never an easy process, and dealing with all the financial aspects just makes things much more difficult. Thankfully, if you live in Canada, there are spousal buyout mortgage programs that ensure that responsibility for the property is taken care of. There are also alternative ways of lending for those who don’t qualify with banks.
So, if you have been sharing a mortgage with your partner and are now getting a divorce, “buying out” your spouse is an option if you want to keep a jointly owned property after a separation.
Here’s how to go about buying out the other mortgage holder, and what to do when you have bad credit or insufficient income to apply for a new loan with the bank.
How Do You Buyout Your Spouse Out Of a Mortgage?
A spousal buyout involves paying your ex-spouse their share of the property’s equity so that they can be released from the mortgage and removed from the deed as owner.
However, if you’re buying out the other holder of your mortgage, you will usually have to borrow more money. Unless, of course, you have the means to buy their part out in cash.
Other options revolve around refinancing your existing joint mortgage, getting a home equity loan, or applying for a spousal buyout program.
Most spousal buyout programs in Canada allow you to finance up to 95% of your home’s value, making them a much better option than regular mortgage refinancing, where you can only refinance up to 80% of the property’s value.
But to get approved for such a program by an A-lender, you’ll need to requalify for the loan with your assets, have a good credit rating, and a high enough income to prove that you will be able to afford the mortgage payments alone. You will also need a legal Separation Agreement and a Purchase Agreement prepared by your lawyers.
As stated above, if you live in Canada and you want to qualify for a spousal buyout program or a mortgage refinancing, you’ll need to show the lender you have enough monthly income and a strong credit history to make mortgage payments on your own.
Most A-lenders will usually require:
- A credit score of at least 620
- A debt-to-income ratio below 45%
- Steady employment and income
But here’s a tip, if you don’t have enough income to qualify for a spousal buyout loan on your own, a private home equity loan can be your best way out.
Unlike a bank, credit union, or other institutional lenders, private loans are usually funded by private lenders — or investor groups — and use home equity or real property as collateral. These loans are much easier to qualify for and are not dependent on your credit score, income, or employment status.
The only drawback is that your private lender will hold a lien on your property and have the legal right to demand full payment on the outstanding balance if you fall behind in making payments.
Also, the interest rates charged for private loans are usually higher than for mortgages or other types of traditional financing.
If you’re interested in spousal buyout mortgage financing in British Columbia, Canada, and want to find the best solution for you and your partner, a mortgage broker can be your best ally. Depending on your financial considerations, we can help you find a loan that will make the process of ending your marriage much easier, so don’t hesitate to get in touch.