A couple going through a divorce often face a difficult decision about what to do with their jointly owned house. Especially if they owe more than the house is worth, which is quite common today.
The house itself may represent an emotional security blanket for the husband or wife, and that is understandable. But letting emotional attachments rule can lead to a major financial mistake. Holding onto the house may provide comfort for one of the parties initially, but the realities are that one person, with a single income, can quickly be weighed down by the high cost of the house. That could lead to foreclosure, making a bad emotional situation much worse.
Couples in this type of circumstance need to think logically, stepping back to assess the true financial value of the house before making a decision. The better choice might be to sell the house, even if the couple is under water on the mortgage.
Divorcing homeowners may not realize just how severely the tremendous decline in housing values has affected their house. Even if they have owned it for as long as seven years, they still may owe more than the house is worth. And as housing values continue to decline, the house may not be worth the battle.
A better alternative may be a short sale of the house, getting the lender to agree to accept the proceeds of the sale as full payment on the loan, even if the price is below the amount owed. Lenders are receptive to this approach, particularly in divorce situations, rather than end up in foreclosure.
Most mortgage companies consider a divorce a justifiable reason for a short sale, due to the financial hardship brought on by the split. The divorcing couple can retain a real estate agent with experience and expertise at short sales to negotiate the arrangement with the lender’s loss mitigation or short sale department.
The first thing divorcing couples need to do is their homework, to assess the market value of the house and check the principal balance of the mortgage. A real estate agent can help determine the home’s value, while a quick call to the mortgage company can determine the principal balance.
Beyond the mortgage payment, the total costs of keeping the house need to be considered. Those include insurance, taxes, utilities, yard care, routine maintenance, and big-ticket items such as a new roof, new air conditioning system, and other major appliances.
If the costs of keeping the home may be too much for one person, and if the principal balance is higher than the market value, a short sale may be the answer. For the divorcing couple, the advantages of a short sale include getting out from under the burden of the loan and avoiding a foreclosure on either person’s credit history.