The decision to divorce doesn’t usually happen overnight. Months or years lead up to the moment of actual separation. And when that moment comes, at least one party immediately faces a time-sensitive question: “where am I going to live now?!”
As reality sets in, more questions keep you up at night:
- Will you sell the house you owned together? If so, how would you split the equity?
- Should one spouse keep the house for the sake of kids?
- What kind of home can you afford with your single income?
- With skyrocketing home prices, will you even be able to find a new place?
- If both of you love the house and want to stay, how do you decide who gets it?
Before you know it, the uncertainty snowballs and you feel overwhelmed. That’s why I encourage clients to tackle housing decisions one step at a time. While every scenario is different, these five tips can help you navigate the most common housing situations that arise when you’re going through divorce:
Consider Nesting: First, figure out whether you’re selling the house, or if one party will keep it. To make the transition easier for the children, many separated parents have started what’s called nesting. This setup is also popular in the current housing market.
Nesting is when you both keep the house so that the kids can continue to live there full-time. In this type of arrangement, you and your soon-to-be-ex-spouse alternate between another place and the family home. If your divorce is amicable, this is potentially a more cost-effective way of splitting up while minimizing disruption to your kids.
Revise Your Housing Budget: If nesting isn’t for you, make sure you understand what your finances will look like post-divorce before committing to a home purchase. Remember, the home buying process is costly and full of surprise expenses. These are easier to absorb when you have a dual income or two adults managing the move.
Your whole financial picture will shift once the divorce is final. Many large financial decisions are still pending and will be made in court. Before buying a new place, make sure you’ve accounted for new budget line items, such as:
- Child support
- Loss of savings accounts
- Divorce legal fees
To take some of the pressure off, consider renting until you are clear on your post-settlement finances can be a great solution.
Check Your Credit: Make sure to get a free credit report before applying for a mortgage – especially if you just started managing household finances. There could be unpaid bills or forgotten payments negatively affecting your score.
To keep your credit as clean as possible, close any joint accounts and pay off joint loans before applying for a mortgage.
Obtain Mortgage Pre-Approval: Before you go down the Zillow rabbit hole, make sure you qualify for a mortgage. This means that you’ll need a steady income history, relatively low debt-to-income ratio, and a good credit score.
Even if you qualify for a mortgage now, you may be better off renting for a period of time. This could allow you to build income history or pay down debt and then obtain a more attractive interest rate
Not all mortgages are created equal and it’s important to find the right mortgage product for you. Conventional loans tend to be best if you’re coming out of your divorce with minimal debt, a high credit score, and 20% down payment. If that’s not your situation, there are other mortgage products that may be better suited for you. These include VA, FHA and USDA loans, to name a few.
Understand Today’s Housing Market: In many parts of the country, the current housing market is very competitive. When you find the right home, be prepared to act fast. This means you may end up paying more than asking price – which is another reason to be very clear on what kind of wiggle room your budget has.
While these points may rationally make sense while you read this article, emotions could take over if you fall in love with a home. Especially if you’re going through the ups and downs of divorce. To help you make the best decisions, you’ll need a a trustworthy sounding board during the home buying process.
When you do find that right property at the right time and price, it’s key that you fund the purchase with an account attached only to your name. If you use co-mingled funds to buy property before the divorce becomes final, your spouse could attempt to claim part ownership.
There’s no sugar coating it: figuring out post-divorce housing can be tedious and tiring. In my experience, I have found that focusing on what’s next is the best way to avoid feeling overwhelmed by divorce. Let the chapter ahead be your motivation, as you move forward with more knowledge, experience and confidence in the person you’ve become.