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When you get divorced, you have three main options for how to handle the house you own together.
- You can sell the home and divide the proceeds.
- One of you can keep the house and buy out the other.
- You both can own the property together temporarily.
All three options may lead to new expenses, including paying a mortgage as a single person or coming up with the funds to pay your ex’s share of home equity. You’ll want to get a full picture of your financial situation and understand what you can afford.
How much is the house worth?
No matter what path you decide to take with the home, an important step is determining its value with an appraisal.
You and your ex will work out a way to decide a fair value. If you can agree on a single appraisal, then that’s that. You could also each get your own appraisals and average them out. If one of you still isn’t satisfied, you can bring in a third impartial appraiser to make a judgement.
Once you’ve agreed on how much the home is worth, you subtract what's owed on the mortgage, and the result is the home equity.
Consider a simplified example of how home equity can be distributed, where a couple owes $100,000 on a house appraised at $400,000.
That means their equity is $300,000 (the $400,000 home value minus the $100,000 owed). If they split the equity equally, they each have $150,000 in equity.
Now that you know what the home is worth, it’s time to decide what to do with it.
Option 1: Sell the house and split the proceeds
This may be your simplest option for a clean break. If you have a mortgage balance on the home, paying it off by selling the house will go a long way to disentangling your shared debts with your ex.
After you’ve paid off any liens as well as taxes and related expenses, you’ll split the remaining money. In most cases, the sale happens after the divorce is finalized.
Option 2: One ex keeps the house
Another option is that one of you keeps the house and buys out the other’s share of the property. The best way to do this when there's a mortgage is to refinance.
Refinancing serves three purposes:
- It removes the other spouse from the mortgage so the house is no longer a jointly held asset.
- It pays off any outstanding mortgage debt, replacing the old mortgage with a new loan.
- It frees up cash to buy out the other's share of the equity.
It's important to consult with a lender early in the process because refinancing and buying out the other spouse may not be feasible. The now-divorced owner typically has to meet the lender's requirements based on one income, which may be unrealistic if the couple originally qualified with two incomes.
Additionally, the refinancer will have to pay today’s mortgage interest rates (which may be higher than when the home was first purchased), and will have to pay closing costs. These fees can be between 2% and 6% of the loan amount.
For FHA, USDA and VA loans: If your current mortgage is federally insured or guaranteed, you might have an alternative to refinancing. You could apply to transfer the current loan from both of you to just one, a process known as assuming a mortgage. When a mortgage is assumed, the interest rate and payment term stay the same — a big advantage if the current loan's interest rate is lower than today's average rates.
To assume the mortgage, you'll need to apply and meet the lender's credit and financial qualifications. Contact your mortgage servicer for details.
Option 3: Both keep the house for now
Sometimes the time isn't right for selling the home. In this case, you and your ex might both stay on the title for a certain period.
Oftentimes, children are the reason that a couple keeps temporary joint ownership. Eventually, the couple usually sells the house, or one ex buys out the other's equity.
If you plan to own the home together after the divorce, you'll need to work out who is responsible for making mortgage payments, paying for utilities and handling upkeep and repairs.
Retaining joint ownership of the home doesn’t necessarily mean that you both live in the house. However, keep in mind that if you move out and you’re still on the mortgage, it might be difficult for you to qualify for another loan or for a rental.
Even if you have an agreement with your ex that they’ll solely pay the mortgage, in the eyes of a lender, that debt is still yours until the house is sold or the loan is refinanced. You could also receive a credit ding if your ex can’t keep up with monthly payments.
Tips for approaching the decision
The options may look simple on the surface, but deciding how to split a house can be wrenching. It’s inherently emotional, which is why it’s crucial to operate logically and strategically.
Know the costs of keeping and maintaining the home, and what you and your ex can afford. Consult outside experts as necessary, from appraisers to attorneys and financial professionals.
A loan officer who has experience with divorcing clients could be especially helpful. Surround yourself with friends and family (and maybe a therapist) who can provide outside perspectives with your best interest in mind. A solid team can guide you to the best next step, and may present factors you hadn’t considered.
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