The costs of a divorce add up quickly. While many charges are easy to anticipate, some catch you by surprise. If you decide to fight to keep your home as part of the divorce, it is crucial to understand the costs that come with that decision. Before you decide to dig in, make sure you are prepared.
Buying Out Your Ex
Let us assume you are required to compensate your ex for 50% of the current equity in the home. For example, consider if the fair market value of your home is $400,000, and your remaining mortgage is $300,000. Then the current equity is $100,000. Your ex would be entitled to 50% of the equity: $50,000.
Now, that does not mean you have to hand over $50,000 in cash, though that certainly is an option. Instead, you can offset the claim by using other assets involved in the divorce to balance out the $50,000 discrepancy. To compensate for the amount you owe, you can relinquish your right to $50,000 of a retirement account. (Note: for the sake of this example, we are ignoring tax consequences.)
In cases when there are not enough assets to offset the amount owed, you can use the mortgage-refinancing process to come up with the required funds to complete the buyout. Or you can make installments over time.
To assume full control of the property, you will need to refinance the mortgage, so that it is solely in your name. To complete the financing process, your home cannot be underwater, and you must qualify for the full amount on your own (or with a suitable cosigner). If you use funds from the refinancing for the buyout, that value will need to be added to the current mortgage amount. Then you can determine the total amount financed.
The refinancing process comes with additional fees that must be paid. For example, you may need to pay for an appraisal or inspection upfront, depending on the requirements of your lender. Additionally, closing costs will apply. In some cases, you will need to have cash to support the closing fees. At other times, you will be able to roll the costs of closing into the loan.
Closing costs vary by state. The state of New York is known to have some of the highest closing costs in the nation. For example, closing on a $200,000 property in New York may cost over $2,500. In contrast, closing on a property with the same value in South Dakota will cost approximately $1,900.
If you want to save on refinancing costs, start early to explore offers from other lenders; you are not required to refinance with your current lender. Do not hesitate to ask for quotes from multiple companies. Then you can determine which institution offers the best deal, and make sure you qualify.
Deeds: Transfers and Fees
For homes without a mortgage (that do not require refinancing to offset any equity owed to your ex), you will need to handle deed fees. This process legally transfers ownership of the property into your name alone. The transfer must be submitted to the county to register the transfer, and there is a fee.
The creation of the deed-transfer paperwork may come with costs. In some cases, you can handle the process yourself with set fees, or you can work with an attorney to draw up the documents. Depending on the method chosen and your location, the total cost may be between a few hundred and a few thousand dollars.
On top of the document-creation fees, a filing fee is required. This fee varies by county, and may depend on a few factors. For example, some counties charge based on the number of pages contained in the document, as well as the fair-market value of the home.
If your home is being refinanced, the costs associated with recording the deed information are added to the closing fees associated with your loan.
Any process that involves your lawyer's time will result in additional charges, which can include hourly fees and costs associated with document creation. Before you include your attorney, make sure you understand how these services apply to the current fee structure—and if there are additional costs for the creation and filing of the documentation.
In some cases, you may be able to complete the transfer process yourself more inexpensively on your own. However, you will not have access to the advice of an attorney during this process. Ultimately, the choice is yours. Make a wise one.
Think long and hard before you fight to keep your home. Make sure you are comfortable taking on the additional expenses, and that you understand the financial implications of the decision. If you still want to fight for it, you can take the challenge on with confidence—knowing there are fewer surprises on the horizon.
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