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What options do I have in buying out my Ex-Spouse in a divorce situation? I obviously have poor credit due to the divorce however there is indeed equity in the home. Also, are the options different if I have a "new co-borrower" with really good credit? Am I able to continue the mortgage and just do a home equity loan to pay my ex his share?
Any help would be greatly appreciated.
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First, are you officially divorced (gold seal in hand) or just seperated? If seperated, do you have an MSA (Marital Seperation Agreement?) in place? Makes a big difference on what you do.
If divorced, and you have poor credit, you can have someone on the loan with you doing FHA, as long as the person is a direct family member. That person does not have to live there. FHA will go down pretty low 540 in credit score. But, don't expect a sexy rate! If the person is not a direct family member, what is the relationship and do they live in the home with you? Makes a difference.
If the person, who is the co-borrower, does not live with you, not a family member, then FHA is out and you will have to go Conventional and the loan will be deemed as a NOO (None Owner Occupant) and the LTV is restricted and the rates are higher. If your credit score is low, lower than 600, it will be tough to get a loan.
So, can you explain more about your situation?
Couple things to really take charge of:
You obviously have poor credit because of a divorce is not always the case or the reason. I am not picking on you, but hating someone and not writing a check for a VISA card are 2 different things. The sad part about divorces is that people do not think past the relationship and how to survive apart and move on with their lives separately. What is bad about bad credit and a divorce to boot... you get to relive it for years to come and pay for it over and over again with higher rates the next time you borrow. Moving on.. If you were to refi on a conventional loan and you are officially divorced and you specify to remove spouse, it will not be considered CASHOUT and that is good and will help in getting a better rate. However adding a "co-borrower" would normally require this person to be added to the title for 90 days in most cases AND it would then make the loan a CASHOUT becasue he/she was not on the old note. Adding co-borrowers and co-signors is a slippery slope as well and perhaps attempting this "alone" is the first strategy. Good luck and we wish you well.
Greg...I believe FHA does not allow a non-occupant coborrower to be added to the loan in a refinance situation (unlike in a purchase transaction)
Fairy....How poor is poor in terms of credit and how much equity is in the house AFTER you pay your ex his share?
Yes they do. I just did one. Co-borrower has to be a direct family member. And, am doing another this week.
Here's the scenario: the house is value is $230, $80 owed on existing mortgage. Not sure of my credit score but I'm sure it's low, the house almost went into foreclosure twice before, in past 8 years. Also, we are in the process of being divorced, on trial now and we are working on the "assets". We have been told by the judge the buy out price of the home for either of us is $230
The potential co-borrower would be living in the home with me. So- I thought I needed a loan to pay my ex- the $70 for half the equity in the home.
If you say so Greg. Ithought I read it somewhere before but maybe things have changed.
Fairy.. You mentioned almost going into foreclosure twice in the last 8 years. How have the last 2 years been with respect to paying the mortgage.
When you type $230 to you mean $230,000? Buy-out price for either at $230,000? Usually, it is the $80,000 in equity in question and that gets haggled over so that your lawyer will agree with your soon-to-be ex's lawyer that you will buy out him out for $40,000. You refinance, take him off the deed, at settlement, and give him $40,000 and he is on his merry way. However, I am not an attorney so you will have to consult with yours about that.
Concerning the "other person," who will be a potential co-borrower, you might want to get some legal advice there too. If the other person is a new person in your life, bases will need to be covered legally too. As long as you are legally married, uless you have an MSA, buying, selling or refinancing property has an affect on your spouse and he can make claim. A simple verbal, or even written contract----without it being drafted by your attorney, okayed by his, signed and notarized, can be breached. It happens. So, talk with your attorney.
What is your income, co-borrower's? What is your credit score? You seem not to want to give it and I would think you would know being in the situation you are in: going through a divorce. And, what is the co-borrower's credit score?
The reason why I am being rather detailed about all this is that I know people very close to me that have bought the other spouse out . . . :-)
The house is valued at $230,000 and this is the price that the judge has set on the house. The pay off on the existing mortgage is $80,000.00. So we have $148,000.00 in equity and if we split the equity that is $74,000.00. In order to buy him out I would need to cover the existing mortgage of $80,000.00 plus the equity of $74,000.00 right? And I thought I could keep the existing mortgage in which there is about 18 years left to pay on and take a home equity loan to pay my ex the $74,000.00 in equity that he is due. Am I right here? Or am I way off track? I honestly do not know what my credit score is however I can tell you that the house was almost foreclosed on in 2001 & again in 2005. Since then I think the payments have not been seriously past due. The combined income for me and potental co-borrower is $70,000.00 and my credit score is low and his credit score is very good (I'm guessing higher then 650). Thank you for your advice.
fairypriness, unless your soon to be ex is an extremely generous man why do you think he would want to remain on the original mortgage note? If you stop paying on the note who do you think they will go after next? Your best bet is to refinance the property and give him his half of the equity, if this is not possible then your next options are to sell the property or have him buy you out.
Just make sure you have a plan. Chances are your scores are low as a result of a long-time mortgage late issue and that carries a lot of weight on your report. Again, keeping it very real, 650 or thereabouts is not a good credit score. If it is not above 680 it is not even average, regardless of the what anyone tells you. Again, not being rude, but you are looking for advice and I am trying to keep you from being fleeced. There may be some very "friendly" people out there willing to help you. I also do not think a Home Equity Line Of Credit is possible at all given your situation and past mortgage history. I could be proven wrong, but I think you will have resistance there. I wish you well.
If you and you new co-borrower can swing it, look at a 15 yr fixed mortgage. Not saying it is a slam dunk but there would not be the serious pricing hits that you would see wiht a 30yr fixed rate. I would say your credit scores would still have to be above 580, Good luck
I am really sorry I posted on this thread! What a mess and it is not the advice of the lenders who tried to help.
Fairy: you are way off on what is and what is what you think will happen. Why? Well, credit scores, values, helocs and the whole mesh. Then, there is the co-borrower. Wow.
I missed a point: 80k owed and you have 150k in equity: 230k - 80k = 150k. Of which is the haggling point of equity of who is entitled to what.
This is a case for Judge Judy.
You basically have three options - 1), take out a home equty loan or 2nd mortgage for whatever amounnt is agreed to to pay your ex or soon-to-be-ex. However, your ex or soon-to-be-ex may balk as if he is signing a quit claim deed, he will want to be off the current mortgage so he can move on; 2) the other option is to refinance your mortgage to pay off the existing mortgage and take out enough cash to pay your ex or soon-to-be-ex. If you don't qualify on income for the new mortgage, you can use a relative as a non-occupant co-borrower on an FHA mortgage to help you qualify. Your credit score will be another matter. If you are unable to obtain a mortgage due to adverse credit, then you have only 1 other option which is 3) sell the house.
My advice is talk to a loan officer who does FHA mortgages soonest to see if you can qualify alone and/or with a non-occupant co-borrowerto determine what the best course of action is for you.
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