Whether you plan to stay in the matrimonial home, or whether you plan to purchase another property – know what you can afford.
So, you are getting a divorce. You are having a hard enough time dealing with the emotions, let alone the fact that you now must rethink your entire future. You have too much on your plate. Life is super hard. You are tempted to splurge on yourself because you deserve it right? While that may be true, and while this might be the last thing you want to hear – bear with me and follow these tips if you are considering keeping the matrimonial home, so that when your head is above water and you are ready to move on to a new living situation – you will have already built the foundation.
Want to keep the matrimonial home after divorce? Consider these key things.
Get a separation agreement
If you need to qualify for a new mortgage on your existing home, OR if you plan to purchase a new home, the lenders will need to see your Separation Agreement. Will you be paying money to your spouse (considered a liability)? Will you be receiving money from your spouse (considered income)? This is critical information you will need to move forward – almost every lender will not loan money without a Separation Agreement.
Deal with your existing mortgage
A mortgage is a financial obligation by which a bank or other lender loans money to you to buy your house. You pay interest on this money on top of your regular payments. More than likely you AND your spouse are listed on your mortgage – which means that BOTH of you are liable should one of you default on the mortgage payments. Regardless of whether you plan to stay in the home or plan to find another place, in most cases, you need to ensure that your spouse’s name is removed from the current mortgage so that your future borrowing ability will not be impacted. Furthermore, contact your mortgage lender to find out what penalties (if any) there will be should you end up closing your existing mortgage before the term is up.
Know what you can afford
Whether you plan to stay in your current home, or whether you plan to purchase another property – know what you can afford. There might be a difference between your ideal situation and reality. Understand the numbers – such as your monthly budget, and how paying or receiving support will impact your situation, and of course, understand what can you actually afford to buy. A mortgage broker can help you to understand your numbers, and in contrast to a more general pre-approval, mortgage brokers actually “pre-qualify” you for a mortgage – meaning – they can work with you to determine exactly how much you will be able to afford to either keep your current property, OR to purchase a new one. This will remove any surprises down the road and give you more control of your situation.
Keep your credit in check!
When I split up with my ex, I was at the mall a few days later where I purchased a ridiculously expensive coat – and an even more expensive bag to go with it. A few weeks later I took an (amazing!) trip to Turkey and continued this buying frenzy for a while. Even though I knew better – I needed the instant gratification to feel better about myself. Learn from my mistakes. This is the time to keep your spending under control and not overdo it. While the shiny new items can temporarily lift your spirits, having the home you want is even more of a high! Make sure you are staying on top of your bills. Lenders carefully examine your credit, your credit rating, and the total amount of credit you have access to. Now is the time to keep your credit balances as low as you possibly can. Now is the time to reign it in.
Understand the new mortgage rules.
As of January 2018, the new “Stress Test” requirement has come into effect. Today, home buyers need to prove they will be able to maintain their mortgage payments if interest rates were to rise. Buyers will need to qualify based on the greater of the Bank of Canada’s five-year benchmark rate, or their contract mortgage rate plus two percent. Depending on your financial situation, these new rules may decrease the amount of mortgage funds you can access.
The good news is there is a huge amount of resources available to you that can make this entire process much easier. The main thing is to understand that, although you might be feeling overwhelmed, there are some key things that need your focus right now. Reach out to your banker, mortgage broker, Divorce Financial Analyst, your accountant – just reach out! There are a lot of people out there to help.