How to Buy a Home After a Divorce
The emotional grief of divorce is all too easy to anticipate, but many people fail to realize how big a financial blow it can land. One of the biggest financial struggles people face after a divorce is how (and whether) to buy a home.
Owning a home is a big part of the American dream, and many parents also equate homeownership with providing a stable and safe environment for their children. Saving up for a down payment on a home and covering the mortgage each month is a lot easier for a two-income household or for a household where one spouse has the time and availability to pursue a lucrative career while the other stays home.
When divorce hits, men and women can find their household income cut in half or worse. If one spouse is a stay-at-home parent they could be in even more dire financial straits. In this situation, how can you afford to buy a home? More importantly, is homeownership the right move?
Keep Your Current Home
A lot of people want to keep their current home after a divorce, especially if they have children or strong community times. In the best possible scenario, you may be able to negotiate with your spouse to keep your home. This may require you to refinance the home to put it in your name and to pay your spouse his or her share of the equity.
Unfortunately, many newly single individuals simply can’t afford this. They may struggle to qualify for a refinance on their own and to come up with the money to pay off their spouse’s share of the equity. Additionally, meeting a monthly mortgage, as well as utility bills, home insurance, property tax, and repairs bills on a single salary can be extremely difficult, especially for the lower-earning spouse.
It is incredibly important that you consider all the costs related to keeping your home. As hard as it is, put your emotions aside and look at the bigger financial picture. Is keeping the house truly the right financial move? The answer may be no.
Alternatively, if you and your spouse seek mediation or agree to a collaborative divorce, you may be able to negotiate with your higher-earning spouse to assist with the mortgage payments. Most parents want to provide their children with a stable environment, and they may be willing to pitch in so you and your kids don’t have to move.
Buy Less House
If you fear that you can’t afford your current home, it might be worth looking for a lower price house or even a condo or townhome. Every city has a mix of different priced housing, and you may even be able to find a good deal within your same neighborhood, especially if you are willing to polish a “fixer-upper.”
Take a look at your financials—or, better yet, sit down with a financial advisor—and figure out how much house you can afford after your divorce. Don’t forget to add in costs for utilities, insurance, property tax, and repairs.
When you’re ready, apply for a mortgage to see how much you can qualify for. Keep your mind open and your expectations flexible. A smaller house can still be a wonderful home. It’s all about the love, not the square footage.
Find a Co-Signer
If you are intent on buying a home or refinancing your current home but don’t qualify for a high enough loan, one final option is to find a co-signer. Asking someone to co-sign on your loan is a huge favor with significant financial consequences. If you start missing mortgage payments, your co-signer will be responsible for them, which could drain their bank account and destroy your relationship forever.
However, if you feel confident that you can afford a certain mortgage even if the bank doesn’t think so, consider asking your parents, siblings, or a close friend to co-sign. If you are on good terms with your ex, perhaps even he or she would be willing to co-sign.
Rent Instead of Own
For many people, buying a home is not the right financial decision right after a divorce. No matter how much you love the idea of owning a home, that doesn’t mean it’s a smart move for you. Look at your financials. If you don’t have a 20% down payment available, a six-month rainy day fund, and a steady income that more than covers the mortgage, it may be better to rent a home, condo, or apartment.
Keep in mind that nothing is permanent. Renting may be the right decision today, but that doesn’t mean you won’t own a home sometime in the future. In fact, renting can help you save money for a future down payment or give you the breathing room to financially recover from your divorce.
A lot of parents worry that renting will have a negative impact on their children, but if buying a home will cause you to stress about money and make it difficult for you to afford all the necessities your family needs, then renting will be a net positive. Children need love more than they need an extra playroom or a huge kitchen. When you feel confident in your financial position, you are better able to give your children the support and care that will really help them flourish.
Not sure what to expect during a divorce? Then sign up for a Second Saturday Divorce Workshop.
This article is reprinted with permission from the Women's Institute for Financial Education (WIFE.org), creator of the Second Saturday Divorce Workshops. Founded in 1988, WIFE is a non-profit organization dedicated to providing financial education for women. Copyright 2019.