Going through a divorce can be a complex process, especially when it comes to the division of real estate. In Texas, as a community property state, the laws regarding real estate transactions after divorce can be particularly intricate. In this blog post, we will explore the process and provide a list of real estate documents that will be required throughout the divorce process.
You will need a clear understanding of whether the home is community property or separate property. If the home was purchased during the marriage, regardless of who is listed on the loan, who made payments on the home, or who is listed on the deed, the home is considered community property. If the home was acquired prior to the marriage, the situation is a bit more complicated. Typically a home purchased prior to the marriage is considered separate property, meaning that the person who purchased the home would retain full ownership post divorce. Where it gets complicated is when the home is “commingled”. This could happen if funds from both spouses were used to make mortgage payments after the marriage, or if funds from both parties were used to make improvements to the property. If you believe that your property should be considered commingled, it will be up to you to provide proof such as financial statements showing that your funds were used for these purposes. If the home you share with your spouse was purchased before your marriage, it would be a smart choice to consult with an attorney prior to discussing a divorce with your spouse so that you understand the most likely outcome before you start the process.
You should also calculate the optimal outcome for your real estate before you discuss a divorce with your spouse. A divorce can often mean a drastic change in lifestyle as a result of going from two incomes to one. In many cases it is difficult for a single spouse to continue paying the mortgage, maintaining the property, and paying for utilities post divorce. As a result, oftentimes the best outcome is to sell the home and divide the proceeds. For homes that are considered community property this typically means a 50/50 split. For commingled property, it’s more difficult to anticipate what split may be awarded. The most accurate way to determine the likely outcome for commingled property is to consult with an attorney.
If you plan to try to stay in your home post divorce, it’s important to consider that if both spouses are listed on your loan, a refinance will be required which means you will have to qualify for the loan with only your income. Read our blog post on real estate refinancing here for a deeper dive into home refinance.
Lastly, if your home is community property or commingled property, and you plan to stay in your home after your divorce, it is likely that you will be required to buy out your spouse's percentage of ownership. For example, if your home is community or commingled property worth $300,000, and you owe $200,000 on your mortgage, you will be required to pay your spouse their split of the $100,000 difference between what you owe and the value of the home. Your spouse can agree to waive their split, but it’s difficult to count on that happening.
Before you can calculate the best outcome for you, you will need to understand the value of your home, how much is owed on the mortgage, how long it may take to sell your home, how many years are left on your mortgage, and the cost to sell your home. If you plan to stay in your home after your divorce, it will be important to confirm that you can qualify for the mortgage without your spouse's income.
Zillow is a good place to start to get a ballpark estimate of your home's value. While their estimations can provide a rough idea, the most accurate way to confirm your home's approximate value is to consult with a licensed real estate agent. Consultations to get this information are normally free. A real estate agent can also give you the best idea of how long it should take to sell your property post divorce and the cost of selling your home, though you can typically consider the cost to be 6% of the home's sales price.
The best source for finding out how much is owed on your home and how many payments are left would be your mortgage service provider. Typically a statement is mailed or delivered electronically on a monthly basis. Most mortgage providers also offer this information online through their websites 24/7 so long as you have the account login information. If your name is not on the mortgage, it may be difficult to obtain this information from the mortgage service provider. In that case you may need to consult with your spouse to get an accurate number.
Regarding your ability to afford your home post divorce if you chose to stay in the home, a mortgage professional will be able to determine whether you can qualify for a mortgage by yourself or not. Typically your ability to obtain a mortgage will depend on your credit score, and your debt to income ratio. A rough credit score can be obtained free through many resources. Credit card and bank statements typically include a “soft” credit inquiry score that will give you an idea of your credit score. There are also a number of websites that are dedicated to providing “soft” credit information. You can also contact the three credit bureaus directly (Equifax, TransUnion, Experian) to obtain credit information.
Your debt to income ratio is the minimum payment for all debt obligations divided by how much money you make per month (pre-tax/insurance). For example, you make $90,000/year before taxes and health insurance are removed, so your monthly income is $7,500. ($90,000/12 months.) You also have one credit card for which the minimum payment is $100/month, a car loan payment of $400/month, and a proposed mortgage of $3,000/month. This translates to $3,500/$7,500. Your debt to income ratio is 46% in this scenario. Most lenders require a maximum of 49% in order to provide a loan, though most lenders would agree that your goal should be to have a ratio well below this if possible.
It’s important to remember that a “hard” credit inquiry will be required to provide actual mortgage costs and to qualify for a mortgage. Make sure you are clear with any mortgage lenders you speak to about your situation. You won’t be able to refinance your home until after your divorce finalized, and hard credit pulls are only valid for 90 days. A mortgage lender will normally be able to provide a picture of whether you can qualify for a loan or not without a hard credit inquiry, but getting approved for a mortgage loan is complicated, and their estimate will only be as good as the information that you provide them with.
Here is a list of real estate information that you will need throughout the divorce process.
Determination of whether property is Community Property, Separate Property, or Commingled Property.
If a prenuptial agreement was made prior to the marriage, and information about the property was included, you will need a copy of the document.
If property is commingled, you will need your financial statements that show your contributions to the property/mortgage to prove that the property is commingled.
Determination of whether you want to sell your home or stay in the home.
Determination of how you will divide the proceeds of a sale or a value that you will pay or receive post divorce so that you or your spouse can stay in the home.
If you are refinancing your home or if you plan to purchase another home after your divorce, a mortgage lender in Texas will need the following. (You will need to know roughly when your divorce will be finalized in order for your lender to provide the timing for these documents. Since the documents are only valid for 90 days and a divorce takes a minimum of 60 days, it’s important to discuss where you are in the process before you invest time into locating these documents.)
Most recent mortgage statement (or at least how much is owed on your home).
Two most recent bank statements (Checking, Savings, Retirement accounts).
Most recent 30 days pay stubs.
Last two years W-2s and tax returns.
A Copy of your driver's license.
A copy of the Deed will be required post divorce. If you cannot locate a copy of the deed, you can get a copy from your county clerks office in the county where the home is located.
It’s important to remember that the above are only guidelines for a typical divorce. As with most things that need to be divided post divorce, a couple can choose to divide their home in any way that they both agree on. It’s also important to remember that if your home was purchased prior to the marriage and it is not considered commingled by either party, none of the above would be required unless the divorcing couple elected to divide the property outside of the traditional way. Regardless, real estate is one of the most complicated parts of a divorce. Having a good attorney, real estate agent, and mortgage lender in your corner will make the process much easier and far less time consuming in the long run.
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