When going through a divorce, dividing your family home is often a big decision. It is typically stressful and even emotional. Often, one spouse will want to keep the family home. If so, then the spouse must be able to buy-out the other spouse’s home equity based on the divorce agreement.
To divide home equity in a divorce, the first step is to obtain an appraisal by a residential real estate appraiser. Then, you will need to reduce this by the balance of the outstanding mortgage along with any other property liens, property taxes, dues, etc. Then both of you will need to decide how the remaining equity is to be split.
Contact me to learn more about the type of appraisal you need to request.
Access Your Equity
As you go through your divorce, let’s assume that you will keep the house and give your ex-spouse his/her share of the home equity. Your house has been valued and the equity has been calculated. Everything is agreed upon and straight forward.
There’s just one challenge. You need more money than a Texas Cash Out (Texas 50 (a) 6) will allow. The Texas Cash Out loan is limited to 80% of the value of your home. You might be trying to figure out your options if you need more than 80% in order to cover the loan payoff plus the equity interest you must pay your ex.
You may be thinking Texas mortgage rules cap the loan amount and therefore might prevent you from being able to buy-out your soon-to-be-ex’s equity in your home.
While the Texas Cash Out does limit the loan amount to 80% of the market value of the home, there is another way to accomplish the division of home equity. Bust that myth.
In a divorce situation, co-owners may be able to access up to 95% of the market value of the home with an owelty lien for the purpose of a buy out the other spouse.
Steve and Marianne are a great example. They are going through a fairly amicable divorce and own a home in a beautiful neighborhood near the lake. They bought the home many years ago at a great price of $350,000. Steve and Marianne would like for Marianne to stay in the home and keep life as normal as possible for their daughters.
Today, their home is worth $450,000 and they have paid down the mortgage to $300,000. Thankfully, Marianne has a good job and income and believes she can qualify for a mortgage on her own. They have come to an agreement they will split the equity 50/50.
Doing the math, there is $150,000 in equity. Each of them will walk away with $75,000. Marianne asks around and hears about the Texas Cash Out. Now she is concerned that she can’t get a big enough loan to buy out Steve. She needs a loan for $375,000 (the balance of the current loan plus the equity interest of Steve) and the Texas Cash Out will only allow for 80% which is just $360,000. Marianne is short on funds.
When Marianne calls me, she is feeling overwhelmed and starting to think she will have to sell their home after all. I ask Marianne if a decree has been written and filed yet. She says, “no” and that is good news. After asking other pertinent questions, I determine that Marianne is positioned to use the owelty lien. She is immediately relieved.
We set about getting her pre-approved for the loan amount. Marianne provides me the information for her divorce attorney so we can connect. I provide the attorney the information to ensure the decree is written properly for owelty partition so the owelty lien can be used.
Owelty of Partition
The court decrees an owelty of partition which is used to allow one co-owner of a property to buy the interest of the other co-owner of the property.
The lender can finance up to 95% of the market value of your home when an owelty lien is utilitized. This way you can buy-out your ex-spouse’s interest in your home.
The owelty lien will allow you to go over and above the Texas Cash Out giving you access to 15% more equity in your home. This is incredibly helpful to so many people.
When using an owelty lien, your home equity division must be spelled out in the decree in a very specific way. For instance, when referencing your home, the attorney must include the legal description not just the street address. The legal description is a lot / block or a metes / bounds description.
Terminology in the divorce decree is equally as important. The use of the word “equity” could pose challenges for financing with an owelty lien. Conversely the use of “interest” provides a clear path.
“Award” and “divest” are also important terms that should be included in your divorce decree when splitting the home.
In addition, the tile must be carefully reviewed. If your present home loan is a Texas Cash Out, then you are stuck. You will need to refinance with a Texas Cash Out and cannot use the owelty lien. Sorry.
You want to be sure this is done correctly so you can take full advantage of the owelty lien benefits. There are very specific steps that must be taken when dividing the equity of your family home. For this reason, it is critical to have guidance from a divorce lending professional to work with your attorney.
Make sure you call me!
The owelty partition is an effective way to use an owelty lien to buy out your spouse. But if not executed properly, you could be restricted to the Texas Cash Out, limiting you to just 80% of your home’s value.