Divorce is a challenging time, and the decisions you make about real estate can significantly impact your financial future. Whether you’re dividing property equity, buying out a spouse’s share or refinancing, understanding the available mortgage programs can help you make informed decisions.
Let’s discuss some practical options, especially for divorcing couples in California, where high property values and unique laws add extra complexity.
Facing Real Estate Decisions During Divorce
One of the biggest questions divorcing couples face is: What happens to the family home? Selling the property and splitting the proceeds is common, but it isn’t the only choice. If one spouse wants to stay in the home, a buyout might be the answer. Alternatively, refinancing can help restructure ownership and payments to reflect the new reality.
These decisions often depend on the financial situation of each spouse. For example, if one partner has irregular income due to self-employment, qualifying for a traditional mortgage may be difficult. That’s where non-QM (non-qualified mortgage) loans come in providing more flexibility in how income and assets are considered.
Non-QM Loans: A Tailored Approach to Divorce Settlements
Non-QM loans are designed for borrowers who don’t meet traditional loan requirements. They are especially helpful for divorcing couples dealing with unique financial circumstances such as:
- Self-employed income verified through bank statements
- Recent credit changes due to divorce proceedings
- Large lump-sum settlements or asset holdings
Property Buyouts Made Simple
If you want to keep the family home, buying out your spouse’s share is a common solution. This involves taking over full ownership by paying your spouse their portion of the home’s equity. For those unable to qualify for a conventional loan, a non-QM loan for property buyouts can make the process smoother by relying on alternative income verification.
For example, let’s say you’re self-employed and receive irregular income. A non-QM lender may be able to use your 12-months of bank statements instead of tax returns to determine your eligibility. This flexibility allows you to secure financing without being penalized for non-traditional income streams.
The spouse departing may be able to use the same type of loan or get approved for an asset-based loan since they just received proceeds (let’s say, $1 million in cash or stock) from the divorce settlement.
Even if you’re unemployed there’s still a path we can use. The crucial item for these loans is your credit score, down payment or equity, and reserves (savings) you already have.
Refinancing Options After Divorce
Refinancing is another option, especially when one spouse wants to keep the property and adjust the loan to reflect the new arrangement. Removing a spouse’s name from the mortgage or accessing equity to fund a buyout are common goals for refinancing after divorce.
Non-QM loans stand out here because they accommodate borrowers with less predictable income or credit changes. For example, if your financial situation has been affected by the divorce, a non-QM refinance loan could allow you to restructure the mortgage without being tied to rigid lending criteria.
California Considerations: High-Value Homes and Community Property
In California, the combination of community property laws and high home values makes dividing real estate equity more complex. For couples in cities like Los Angeles or San Francisco, where the median home price often exceeds $1 million, access to an alternative mortgage solution is critical.
Divorcing couples often turn to non-traditional loans for separating homeowners to bridge the gap. These loans can help you refinance, buy out your spouse, or even purchase a new home if selling the family home becomes the preferred option.
Steps to Divide Real Estate Equity During Divorce
- Determine the Home’s Value: Get an appraisal or market analysis to understand the property’s worth.
- Calculate Remaining Equity: Subtract the mortgage balance from the home’s current value to find the equity.
- Decide on Financing: Use a non-QM loan if conventional options aren’t feasible. These loans allow you to structure a buyout or refinance while accounting for irregular income or credit challenges.
For beneficiaries of settlements or those inheriting properties as part of a divorce, dividing real estate equity with a new loan provides a path to financial independence.
Addressing Common Questions
- Can I buy out my spouse without selling the home?
Yes, a conventional or non-QM loan can enable you to buy out your spouse’s share by accessing the equity in the home, even if your financial profile has changed. - What if I don’t have consistent income documentation?
Non-QM loans offer flexibility by considering alternative documentation, such as bank statements or liquid assets. - Are non-QM loans more expensive?
While rates may be slightly higher, the trade-off is greater flexibility and accessibility for borrowers with non-traditional circumstances.
Supporting Divorcing Couples With Personalized Mortgage Solutions
Divorce is already a stressful process. Your mortgage solution shouldn’t add to the burden. As a licensed loan originator in California, I specialize in helping divorcing couples explore options that fit their unique financial situations. From property buyouts to refinancing with non-QM loans, my goal is to provide guidance you can trust.
If you’re navigating a divorce and need clarity about your mortgage options, let’s connect. Together, we’ll find a solution that works for you.