How you choose to approach the issue of buying someone out of a house depends on the complexity of your relationship. One usual solution for many parties terminating their relationship is completing a buyout.
So how do you buy someone out of a house? Are married couples facing more red tape than common-law couples? How do you decide who stays and who goes?
Breaking up, whether it’s a marriage, common-law arrangement, or any other form of significant relationship, is a challenging emotional time. But, for many of us, there’s also a financial aspect when ending a partnership: the division of assets, jointly owned property and sometimes, a mortgage.
Here’s what to expect when handling a mortgage buyout.
Divorcing Couples vs. Separating Common-Law Couples
In the case of a married couple going through a divorce, both parties have equal rights to stay in the shared household. Without the provision that one of the spouses has a court order on their name, none of the parties can sell, rent or mortgage the family home without the other spouse’s accord.
If, of course, one or both spouses prefer to vacate the premises, they are free to do so, as long as they continue paying the mortgage and other property fees.
When it comes to how to buy someone out of a house, things are a little different for common-law couples. When they decide to separate, the individuals do not share equal rights to occupy the home. Usually, the property remains in the ownership of whoever bought it during the relationship (or had it before). The name on the title of property pretty much settles the argument.
In the case of a shared home, the owner is allowed to stay on the property and the other partner should move out. If both partners jointly own the home, they can agree to sell it and divide the money.
Otherwise, one of the partners will need to buy out the other one.
A cohabitation agreement is a legal agreement that establishes the parameters of your living arrangement. This document should outline the couple’s course of action in the event of separation. Without a clearly stated agreement, a lawyer or mediator will help with the division of the home and other goods. This will, in fact, lead to a sort of buyout between the two partners.
Steps To Take Before a Separation
A spousal buyout might be necessary if you are in the process of terminating your marriage. Since your mortgage is a financial obligation, your lender will want to make sure nobody leaves the house before the papers are in order.
So here is how to buy someone out of the house, step by step.
Step 1: Make Sure The Relationship Is Really Over
The asset division process is long and gruelling. So delay the launch until you are certain the decision to terminate the marriage is final, and there’s no turning back.
Step 2: Negotiate The Separation Agreement
This will outline how your financial obligations will be handled and other issues such as child custody, child support and spousal support in case the relationship ends.
Keep in mind that two partners are legally separated only after they both sign a separation agreement. Separation predates a divorce (officializing marriage termination) and is necessary before a buyout can take place.
Separation agreements can occur between other financially bound family members as well. For example, estranged parents and their offspring who share property.
Step 3: Determine Which Partner Wants To Keep The House
The best-case scenario is that you both want to sell it and split the proceeds. No buyout is required in this case.
If one party wishes to purchase the house for themselves, you have several options.
The lender will want the mortgage issue handled before the marriage is terminated. As long as both names are on the mortgage, paying off the loan is a mutual responsibility. This is why it is indicated to prioritize handling your obligation.
Remember that any delay could impact your loan credit in the future. In fact, since many lenders wish to minimize the risks, you may already be contractually obligated to complete the buyout before the official marriage termination. It makes sense since spousal or child support following a divorce may further burden acquitting your mortgage.
Getting separate agreements in advance to establish the division of mortgage and other assets will save you and your lenders a lot of hassle down the road. Since breaking up is usually very emotionally charged, discussing the assets’ division while still on neutral ground is a good idea. Once you have this, you are free to move forward.
Try having a pragmatic approach to the situation. Hope for the best, but prepare for the worst.
Buying Someone Out Of a Mortgage: Options For The Spouses
For those looking how to solve this situation, know that, depending on your circumstances, there are four ways to handle your house mortgage in the event of a divorce:
This option works if both parties agree to sell the house, cover the mortgage and additional fees, and split the proceeds. It doesn’t require the help of a mortgage broker.
One Partner Remains, One Partner Leaves, No Cash Requirements
The departing partner will need a release of covenant from the lender. The partner remaining on the property will then assume the mortgage and must make sure their financial credentials still qualify for the entire mortgage.
Legal fees are involved, but with the help of a knowledgeable mortgage broker, they can all be sorted out faster.
One Partner Remains, One Partner Leaves, Cash Required
This solution is basically the buyout because the departing partner needs to buy the other partner’s half of the property. Of course, the second half includes all equity built in the house up to that point. The leaving partner will be discharged from the mortgage, collect their cash and walk away.
No Home Equity, Selling And Refinancing Are Not an Option
No equity — or negative equity — means both parties owe a bigger price against the house than it is worth. If this happens, both parties are required to either pay up the entire amount to get out of the deal or wait until they have enough equity to sell the home. The mortgage, utilities, and property tax can then be paid from the profits, with additional profits remaining to be divided.
The details concerning both parties can be covered through a joint venture agreement. This won’t affect your odds of obtaining another mortgage in the future.
Deal With Your Financial Obligations In Advance
The more in-depth you are in a marriage or common-law arrangement, the longer it will take to dissolve it, especially when financial considerations are at stake.
Discussing a possible break up and asset division may be uncomfortable. However, it’s a reality both adults need to handle to prevent more complications and heartache down the road. The faster you manage this, the better for all parties.
If you are looking for the best solution to buy someone out of the house in BC, your safest bet is to contact a reputable mortgage broker to guide you through your options. An expert will know how to determine the best option for you, your chances of getting a different type of loan in the future — such as a home equity loan or a second mortgage — and if your financial position is strong enough to withstand extra mortgage payments.
If you’ve gained clarity around the topic of how to buy someone out of a house, you might be interested in:
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- Refinance a Mortgage With Bad Credit
- Consumer Proposals And Mortgage Renewals In BC: What You Need To Know